UK FRC publishes 2024 annual review of corporate reporting: key takeaways for sustainability reporting

On 24 September 2024, the Financial Reporting Council (FRC), as regulator for reporting and audit in the UK, published the results of its latest Annual Review of Corporate Reporting (see FRC press release). This blog post focuses on the FRC’s comments on sustainability reporting by UK-listed and UK-incorporated companies.  

UK listed companies’ reporting against the TCFD framework

The FRC has identified comparatively few compliance issues. However, some companies continue to find TCFD-aligned reporting challenging, and the matter has just moved into the top ten issues this year.

Consistency statements required by UK Listing Rules: The most common issue looked at by the FRC is a lack of clarity around statements of consistency with the TCFD framework. As part of its review, the FRC wrote to companies that: (i) did not report against TCFD despite being in scope of the relevant Listing Rules; (ii) provided disclosures that were unclear as to the extent of compliance or did not clearly identify the areas of non-compliance; (iii) gave inadequate references to information disclosed outside the annual report; and/or (iv) did not explain the steps being taken to address areas of non-compliance, and the expected timeframe.

Other TCFD reporting issues: The FRC also asked companies to explain apparent inconsistencies between their disclosures and the TCFD framework, or a lack of clarity, in relation to strategy, including climate-related risks and opportunities and metrics and targets.

Strategic report: The FRC challenged companies over the level of prominence given to green initiatives in the strategic report with relatively little discussion of core activities that generated the majority of the company’s carbon emissions.

Financial statements: The FRC also challenged companies when it was unclear how climate change impacts had been reflected in their impairment assumptions.

Generally, the FRC notes that disclosures could be more concise and that material information should not be obscured.

Over the coming year, the FRC will continue to monitor the extent to which material information about the effects of climate change are incorporated into the financial statements, and the consistency with the degree of emphasis placed on climate-related risks and uncertainties identified in companies’ narrative reporting.

UK-incorporated companies reporting under the Companies Act 2006

The FRC refers to this as “Climate-related Financial Disclosures (CFD)” reporting.

The FRC plans to publish the results of a thematic review of CFD reporting this winter (2024/25).

As part of its review, the FRC will look at the CFDs in the annual reports of a selection of large private and AIM companies which have a year-end between August and December 2023. The review will consider how well these companies have applied CFD regulations, identify good practice examples of how companies have met the disclosure requirements, and set out the FRC’s expectations for future reporting.

Companies listed on the Main Market (and subject to the UK Listing Rules) are expected to already comply with the CFD requirements but are warned to consider the differences between the requirements (e.g. in relation to the location of the disclosures and bearing in mind that the CFDs are mandatory and not “comply or explain”).

EU CSRD

The FRC notes that UK companies with a material EU presence will also need to consider the requirements in the EU Corporate Sustainability Directive (CSRD) and that this is causing pressure for some reporters.

Available guidance on the CSRD’s scope and timing includes that published by the Institute of Chartered Accountants in England and Wales (ICAEW) - see here.

For more information on the CSRD, see our materials here.

ISSB standards

The FRC’s report gives a summary of the review and adoption process so far for endorsing the International Sustainability Standards Board (ISSB) standards in the UK but no new information on when these might begin to apply beyond that they are not expected to be effective in the UK until periods beginning on or after 1 January 2026 at the earliest. Nevertheless, the FRC encourages companies to familiarise themselves with these standards, “where relevant”.

According to the UK government’s page on the UK Sustainability Reporting Standards (UK SRS) (see here), the government aims to make endorsement decisions on the first two ISSB standards by Q1 2025 and these standards will form part of a wider Sustainability Disclosure Reporting (SDR) framework led by HM Treasury.  Once the assessment process is complete, and subject to an affirmative endorsement decision, the Financial Conduct Authority (FCA) will be able to use the UK’s standards to introduce requirements for UK-listed companies to report sustainability-related information to their investors, subject to a consultation process. Subject to an affirmative endorsement decision, the government will also decide on disclosure requirements against the endorsed standards for UK companies that do not fall within the FCA’s regulatory perimeter. That decision will take into account a number of factors, including costs for reporting companies and benefits for investors that may wish to use this information.

For more information on the ISSB standards and the UK’s adoption of those standards, see our briefings here and here.

FRC approach to enforcement 

The FRC will only ask companies a substantive question when it appears that there is, or may be, a material breach of a reporting requirement.

The FRC principally engages with companies on a voluntary basis. It rarely resorts to using its formal powers and has not done so in the past year.

The FRC continues to work closely with the FCA in line with its existing joint supervisory strategy in monitoring TCFD-aligned disclosures. Matters identified by the FRC can be referred to the FCA for further action when necessary (although this does not seem to have occurred this year).

More information 

For more information on the UK’s rules on TCFD-aligned reporting for UK companies, see our briefings:

• UK listed companies: Climate & Sustainability Reporting Overview
• Non-listed UK companies & LLPs: Climate & Sustainability Reporting Overview
• UK corporate reporting 2023/24: recent developments and guidance for listed companies

For more information on other aspects of the FRC's Annual Review of Corporate Reporting, see our client briefing: FRC sets out expectations for 2024/5 annual reports and accounts.