02 December 2019

Last week the FT reported that “France is pushing the EU to introduce compulsory environmental reporting standards for European companies and apply a common definition of “green” financial products.” In the UK, issuers should be aware that the FCA is likely to take regulatory action in 2020 to enhance climate-related disclosures by listed issuers. Climate change reporting is also likely to feature as an important theme in the FRC’s work in 2020. It was a key theme in the FRC’s Year-End Advice Letter to Audit Committee Chairs and Finance Directors.

What’s in the pipeline?

Rule changes – “comply or explain” climate-related disclosures: In early 2020, the FCA will consult on rule changes to enhance issuers’ climate change disclosures. The 2020 consultation will contain details of the proposed new disclosure rules which will require certain listed issuers to make climate-related disclosures aligned with the recommendations published by the Taskforce on Climate-related Financial Disclosures (TCFD). Any new rules will be introduced on a “comply or explain” basis at least for an initial period as issuers adjust to the new disclosure requirements. 

This builds on the FCA’s suggestion in its Discussion Paper (18/8) on Climate Change and Green Finance (DP18/8), that it was considering the introduction of new rules requiring listed “issuers to provide a statement to investors explaining whether or not they have followed the TCFD recommendations in preparing their disclosures. If they had not, issuers could be required to explain why. Such a requirement could be focused on companies with premium listed equity shares, where investors may have greater expectations that issuers meet the highest standards.”

Application of existing rules to climate-related disclosures: The FCA also intends to clarify its view, expressed in DP18/8, that the existing disclosure requirements already require a listed issuer to report the implications of climate change for its business where those implications are financially material to its prospects. The rationale for this view is that the disclosure requirements (LRs, PRs and DTRs) apply to all matters which are material to an issuer’s prospects and that includes climate-related matters which fall into that category.

In DP18/8, the FCA noted that “issuers of securities have to consider what disclosures they should make to adequately inform investors of the financial implications of climate change on their business, including what adjustment they may need to make to their business to manage risks or explore opportunities… The specific circumstances of a particular company will determine the scope and nature of the disclosures it needs to make to adequately inform investors. However, there is a significant risk that a company will not satisfy disclosure requirements if it provides no information on climate-related issues or if the company’s board has not considered whether the company needs to provide such disclosure.” 

Issuers will need to grapple with one set of new climate-related disclosure requirements which may operate on a “comply or explain” basis and those requirements contained in the existing disclosure framework which cover climate-related matters but on a mandatory basis.

FRC Annual Review of Corporate Reporting: climate change

The FCA’s decision to consult on new rules sits alongside recent commentary from the FRC on climate change reporting. This is contained in the FRC’s 2018/2019 Annual Review of Corporate Reporting

The FRC:

  • restated its expectation that issuers should address, and where relevant report on, the effect of climate change. Reporting should set out how the issuer has taken account of the resilience of the company’s business model and its risks, uncertainties and viability in both the immediate and longer-term. The FRC’s Year-End Advice Letter to Audit Committee Chairs and Finance Directors contains a specific section on reporting on climate risk;
  • challenged issuers whose business models appear to give rise to significant climate change risk, but where this has not been discussed in the annual report and accounts. The FRC commented that: “Climate change may give rise to physical risks (risks arising from the direct physical impacts of climate change) or transition risks (risks arising from the transition to a low-carbon economy). When either risk is significant, we expect that fact to be disclosed and explained”;
  • provided a case study illustrating its approach to climate change reporting; and
  • discouraged the use of boilerplate reporting in relation to climate change. Instead, where such risks are material to a group, the FRC expects issuers to disclose the specific areas of risk to which the issuer is exposed. Issuers can expect the FRC to challenge cursory or boilerplate disclosures.

The FRC expects that climate change reporting will require a sustained focus from companies and their boards “on climate change issues, how they affect the company’s business model and how the company impacts climate change”.

Environmental pressure groups are actively monitoring the reporting of climate change risk. Last year, the environmental NGO ClientEarth reported four companies – EasyJet, Balfour Beatty, EnQuest and Bodycote – to the FRC for failing to report adequately on climate change risk and the impact of a change to a low carbon economy. Interestingly, the companies’ reports did mention climate change and the various mitigation measures the companies were taking to address it. The argument from ClientEarth is that a few positive references to climate change mitigation is far from a clear and comprehensive assessment of the material financial risks that climate change posed to their businesses.  ClientEarth also wrote to the auditors – PwC, KPMG, EY and Deloitte – to question why they had not raised these issues in their review. 


What is the FCA’s objective in introducing these new rules? The FCA wants listed issuers to provide markets with readily available, reliable and consistent information on their exposure to material climate change risks and opportunities.

Where can I find some examples of climate-related disclosures? A number of listed issuers are already disclosing in accordance with the TCFD’s recommendations. The Financial Reporting Lab has recently published a report (Climate-related corporate reporting: Where to next?) providing companies with a list of questions to ask when analysing the adequacy of their disclosures. The report recommends that issuers use the TCFD reporting framework when analysing how climate–related risks and opportunities affect their businesses and reporting on climate change.

Will these new requirements apply to all listed companies? No. We expect that the requirements will only apply to issuers with shares admitted to the premium segment of the Official List. However as the UK Stewardship Code 2020 is not restricted to listed equity, it is possible that the FCA may take a broader approach and also require disclosures by issuers of other listed securities (debt and preference shares).

When will the new rules be published and come into effect? The FCA is in consultation mode and has not given an indication on timing. However, when the UK Government published its Green Finance Strategy in July 2019, its expectation was that all listed companies would publish climate-related financial disclosures in line with the recommendations of the TCFD by 2022. So we expect that to underpin the FCA’s approach.

How can we help?

If you would like to discuss FS 19/6, climate change disclosures or ESG matters, please speak to your usual contact at Burges Salmon, Michael Barlow or Nick Graves. We recommend that issuers engage with the FCA when it publishes its consultation document in early 2020 as it only received a limited number of responses to DP 18/8 from issuers.


Key contact

Michael Barlow

Michael Barlow Partner

  • Head of Environment
  • Head of Water
  • Head of ESG

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