New requirements for climate-related financial disclosures
From 6 April 2022, climate-related financial disclosures will have to be made in strategic reports or energy and carbon reports by certain companies.
Since 2015, methods of increasing reporting of climate-related financial information have been explored, with some voluntary disclosure recommendations being put forward in 2017. It was announced in November 2020 that the reporting requirements would become mandatory.
These reporting requirements will increase the quantity and quality of climate-related reporting across the UK business community. They will also provide a uniform way to assess how a changing climate may impact on a business model and strategy and also help businesses to harness opportunities from the UK's transition to net zero.
We've set out some information below about who needs to make the new disclosure and what needs to be reported.
Reporting requirements
The new reporting requirements for climate-related financial disclosures are brought into force via amendments and modifications contained in the:
- Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations SI 2022/31, which apply to certain companies;
- Limited Liability Partnerships (Climate-Related Financial Disclosure) Regulations SI 2022/46, which apply to large LLP's, traded LLP's and banking LLP's.
The disclosures must be made as part of the strategic report or, in the case of a large LLP, their energy and carbon report.
They are designed to significantly increase the proportion of companies taking action against climate-related risks and opportunities, providing investors with more information to understand and manage climate-related financial risks and to provide stakeholders with more information on climate-related matters.
Who it applies to?
The companies required to make the disclosures are:
- UK companies with more than 500 employees which have transferable securities admitted to trading on a UK regulated market, banking companies or insurance companies;
- UK registered companies, with securities admitted to the Alternative Investment Market of the London Stock Exchange, with more than 500 employees;
- UK registered companies not meeting the above descriptions but who have more than 500 employees and a turnover of more than £500m;
- traded LLP's and banking LLP's with more than 500 employees, or their parent LLP where the aggregate number of employees for the group is more than 500;
- large LLP's (but not a traded LLP or banking LLP) which have more than 500 employees and a turnover of more than £500m, or their parent group if the aggregate number of employees of the group is more than 500 and the annual turnover is over £500m.
What needs to be disclosed?
The climate-related financial disclosures are:
- governance arrangements in relation to assessing and managing climate-related risks and opportunities;
- how the company/LLP identifies, assesses and manages those risks and opportunities;
- how processes for identifying, assessing and managing climate-related risks are integrated into the risk management process;
- a description of the main climate-related risks and opportunities facing the company/LLP and the time periods in which the risks and opportunities are assessed;
- the actual and potential impact of the main climate-related risks and opportunities on the company's/LLP's business model and strategy;
- an analysis of the resilience of the company's/LLP's business model and strategy, accounting for different climate-related scenarios;
- a description of the targets used to manage climate-related risks and to realise climate-related opportunities and of performance against those targets;
- a description of the key performance indicators (KPI) used to assess progress against targets used to manage climate-related risks and realise climate-related opportunities and of the calculations used with those KPIs.
