TCFD reporting for UK listed companies: FCA and FRC guidance

The FCA is planning to publish a technical note with guidance to help listed companies with new climate reporting requirements. Premium-listed companies must already report for financial years beginning in 2021 on whether or not they have included TCFD-aligned disclosures in their annual reports. This obligation is to be extended to standard listed companies and the FCA has indicated that the final rule will be published before the end of 2021 so that it can apply to financial years beginning on or after 1 January 2022. See here for more detail on the forthcoming rule for standard listed companies and here for the existing TCFD rule for premium listed companies.

The draft guidance emphasises the principle that to comply with the TCFD recommendations, issuers should provide sufficient, company-specific information to support decision-making by investors. Where issuers do not fully disclose in accordance with the recommendations, they must explain clearly and unambiguously the reasons why they have not done so.

The FCA has also clarified, in its Primary Market Bulletin 36, how listed companies’ TCFD disclosures will be enforced by the FCA and FRC:

• If a listed company’s disclosures do not appear to meet the requirements of the Listing Rules, the FRC is likely, in the first instance to contact the company setting out the issues and asking for further information. The FRC may then ask the company to take corrective or clarifying action, such as undertaking to enhance their disclosures in subsequent reports and accounts. The FRC would expect matters to be satisfactorily addressed through this type of engagement without the need for further action.
• If the FRC is unable to reach a satisfactory conclusion through engagement, the matter will be referred to the FCA to take appropriate action.
• The FRC will also refer matters to the FCA which are identified as containing potentially false or misleading information, including the omission of material facts, likely to cause investor harm or which may breach other relevant FCA rules for ESG matters.
• If a listed company fails to make a statement in their annual financial report regarding TCFD-aligned disclosures as required by the Listing Rules, then the FCA will request that a listed company publishes the TCFD statement via a Regulatory Information Service (RIS) as soon as possible after discovery. “Any non-compliance will be viewed seriously and will lead to action using the full suite of powers, as well as sanctions, where appropriate”.

The FRC in its recent Annual Review of Corporate Reporting warned that it “will be closely reviewing how companies report against the new TCFD requirements” and that climate reporting will be a priority for the FRC’s routine monitoring in 2021/2022 (see here).

The FRC has also published FRS 102 Factsheet 8: climate-related matters, to help preparers of annual reports under FRS 102 (The Financial Reporting Standard applicable in the UK and Republic of Ireland). The first part of the factsheet outlines the ways in which climate-related matters may impact financial statements prepared under FRS 102. The second part summarises current and proposed legal and regulatory requirements applicable to companies in the UK in relation to climate and associated matters. This is intended to support preparers in considering how to achieve the required linkage between their financial and narrative reporting.

The FCA has also reminded listed companies that they may be required to make disclosures on climate-related and other ESG matters in certain circumstances under other provisions of the Listing Rules, or under particular provisions of the Disclosure Guidance and Transparency Rules, Market Abuse Regulation and Prospectus Regulation (as part of periodic financial reports, a prospectus, or other publications or ad hoc announcements, as applicable) (see Technical Note TN 801.1).