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The UK’s FCA and FRC review the quality of companies’ TCFD disclosures


The UK’s Financial Conduct Authority (“FCA”) and Financial Reporting Council (“FRC”) have published the findings of their respective reviews of the first batch of premium listed companies’ Taskforce on Climate-related Financial Disclosures (“TCFD”)-aligned disclosures (the “Reports”). The FCA’s review involved a relatively high-level quantitative assessment of climate-related disclosures made by 171 premium listed companies, and a more detailed qualitative assessment of the alignment of those disclosures with the TCFD Recommendations for 31 of those companies. The FRC’s review, on the other hand, involved a more granular analysis of the disclosures of 25 premium listed companies that are perceived to face greater climate change-related risks.

The requirement to make TCFD-aligned disclosures

For financial years beginning on or after 1 January 2021, Listing Rule 9.8.6R(8) requires premium listed companies to include a statement in their annual financial report setting out whether they have included climate-related financial disclosures that are consistent with the TCFD Recommendations. Listing Rule 9.8.6R(8) also requires premium listed companies that have not included such climate-related financial disclosures in their annual report to explain why they have not done so, and the steps that they are taking to enable them to make TCFD-aligned disclosures in the future (as well as the timeframe within which they expect to be able to make those disclosures).

For further information on the TCFD Recommendations and guidance on making TCFD-aligned disclosures, please read our earlier blog posts here and here.

The key findings of the Reports

The Reports highlight that the number of premium listed companies making TCFD-aligned disclosures increased significantly in comparison with 2020. The Reports also noted an improvement in the consistency and completeness of these disclosures. However, the disclosures were by no means perfect; there are, in fact, several areas where premium listed companies need to improve. In particular, the Reports found that:

  • Over 90% of disclosures were consistent with the TCFD Recommendation’s “Governance” and “Risk Management” thematic areas, but less than 90% were consistent with the “Strategy” and “Metrics and Targets” thematic areas;
  • Despite the fact that 81% of companies indicated they had made disclosures consistent with all of the TCFD Recommendations, the disclosures were generally quite limited in content and lacked any real substance;
  • The most common reporting gaps related to the more quantitative elements of the TCFD Recommendations, such as scenario analysis. For example, the Reports highlighted that companies largely failed to clearly explain how the effects of their own net zero commitments may impact the valuation of their assets and liabilities; and
  • The detail and consistency of companies’ disclosures often correlated with the sector and size of the companies, as well as the extent to which the companies had identified climate change as a principal risk when conducting risk assessments.

The FCA is considering the failings of some premium listed companies’ disclosures, and has warned that it may take appropriate action.

The recommendations of the Reports

To ensure that premium listed companies improve their TCFD-aligned disclosures when reporting in the future, the Reports recommend that companies take a number of actions, including (but not limited to):

  • Providing more granular and specific information about the effect of climate change on the different businesses, sectors and geographies of the company, in accordance with all four thematic areas of the TCFD Recommendations;
  • Ensuring that the discussion of climate-related risks and opportunities is balanced, as well as linking climate-related opportunities to the company’s technological dependencies;
  • Linking climate-related disclosures to other elements of narrative reporting, such as information about the company’s business model and strategy, as well as its risk management and governance processes;
  • Explaining how the company has decided what climate-related information should be disclosed and how they have considered materiality in the context of their TCFD-aligned disclosures; and
  • Providing a better understanding of the relationship between climate-related risks and the amounts in their financial statements.

Although the Reports focused on premium listed companies that were required to publish TCFD-aligned disclosures for the first time by 30 April 2022, the findings will be of interest to other companies for whom climate-related disclosures will be required in the future. For example, companies with a standard listing will have equivalent disclosure requirements for accounting periods beginning on or after 1 January 2022 (as noted in the FCA’s Policy Statement (PS21/23)), whilst large private companies and LLPs will also have to make TCFD-aligned disclosures in their reporting for financial years starting on or after 6 April 2022 (under the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 and the Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022, respectively). The findings and recommendations of the Report should, therefore, be considered by all companies that may be the subject of TCFD-aligned reporting requirements in the near future.



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