Quick Guide: Key Sustainability Disclosure Regimes: UK climate disclosure rules under Companies Act 2006

The UK has two main sets of rules for the disclosure of climate change issues by companies - one under regulations made in 2022 under the CA 2006 and one under the UK Listing Rules (“UKLR”). Companies which are incorporated and listed in the UK are required to comply with both sets of rules. 

The government is consulting on how to implement the International Sustainability Standards Board (“ISSB”) standards into UK law in the form of new UK Sustainability Reporting Standards (“UK SRS”). These would introduce a wider sustainability disclosure regime that is not focused just on climate change issues. This will require changes to the CFD regime under the CA 2006 and changes to the regime under the UKLR.

• All UK incorporated companies that are required to produce a non-financial and sustainability information statement – i.e. UK companies that have more than 500 employees on average in a financial year and have either transferable securities admitted to trading on a UK regulated market or are banking companies or insurance companies.
• UK companies with securities admitted to AIM with more than 500 employees.
• UK high turnover companies (more than £500 million) with more than 500 employees.
• Traded or banking UK LLPs with more than 500 employees.
• Other high turnover UK LLPs (more than £500 million) with more than 500 employees.

UK subsidiaries that are in scope of the 2022 Regulations do not need to make individual disclosures where their UK parent company includes this information in their consolidated annual report. However, a UK company with an overseas parent company must make these disclosures if it is in scope.

The CFD regime is overseen by the Financial Reporting Council (“FRC”). 

Companies and LLPs in scope must include specified climate-related financial disclosures (“CFD”) in the non-financial and sustainability information statement in their annual reports. 

There are eight CFD requirements that fall under four thematic pillars: governance; risk management; strategy; and metrics and targets:

• A description of the governance arrangements of the company or LLP in relation to assessing and managing climate-related risks and opportunities.
• A description of how the company or LLP identifies, assesses and manages climate-related risks and opportunities.
• A description of how processes for identifying, assessing and managing climate-related risks are integrated into the overall risk management process in the company or LLP.
• A description of the principal climate-related risks and opportunities arising in connection with the operations of the company or LLP, and the time periods by reference to which those risks and opportunities are assessed.
• A description of the actual and potential impacts of the principal climate-related risks and opportunities on the business model and strategy of the company or LLP.
• An analysis of the resilience of the business model and strategy of the company or LLP, taking into consideration different climate-related scenarios.
• A description of the targets used by the company or LLP to manage climate-related risks and to realise climate-related opportunities and a description of performance against those targets.
• The key performance indicators used to assess progress against targets used to manage climate-related risks and realise climate-related opportunities, and a description of the calculations on which those key performance indicators are based.

The purpose of the CFD requirements is to enable a reader to understand the effect of climate-related financial risks and opportunities on the in-scope company. It is expected that investors will use this information to make buying and selling decisions, and to inform their stewardship and broader stakeholder activities.

The CFD requirements are aligned with the recommendations issued by the Task Force on Climate-related Financial Disclosures (“TCFD”) - i.e. they are based on, but do not directly mirror, the TCFD recommendations and recommended disclosures. This is an important distinction (see “Interaction with UK Listing Rules” below).

It is a criminal offence for a director to fail to take all reasonable steps to prepare a strategic report. 

Separately, directors will commit an offence if they approve a strategic report that does not comply with the requirements of the CA 2006 and knew that it did not comply, or were reckless as to whether it complied, and failed to take reasonable steps to ensure compliance, or to prevent the report being approved. 

Both offences are punishable by a fine.

The FRC carried out a thematic review of the CFD regime by AIM and large private companies, which was published in January 2025.

The FRC looked at the annual accounts of 20 UK companies that had more than 500 employees and were either AIM companies or private companies with a turnover of more than £500 million. Companies were chosen from a variety of industries that will be affected by climate change in various ways and to different extents. It is the first time that the FRC has carried out a review of reporting by these companies.

Overall, the FRC review found that, while companies have endeavoured to meet the CFD requirements, there was inconsistent quality among the companies selected. The FRC emphasised that companies should be aiming to provide CFD information that is fair, balanced and comprehensive. However, it reminded companies that CFD information does not have to be long or complex, and commented that better disclosures are generally more concise and often convey information using tables or diagrams. The FRC review also set out examples of good practice and identified areas where companies can provide more consistent, coherent and concise disclosures, in addition to specific areas for improvement

For more information, see our blog post. 

The CFD regime under the CA 2006 and the CRFD rules in the UKLR are similar but not identical.

According to the government’s non-binding guidance on the CFD regime, UK companies with more than 500 employees that are within the scope of the CRFD rules under the UKLR will be subject to both the CFD (under the CA 2006) and the CRFD (under the UKLR). 

The guidance states that as both sets of requirements are based on the TCFD recommendations, there is a high degree of consistency between them. It points out that the main difference between the two regimes is that the UKLR directly reference the TCFD recommendations while the 2022 Regulations made under the CA 2006 are aligned with the TCFD recommendations but do not directly reference them.

The guidance also advises that where a UK listed company is subject to both regimes, disclosure in accordance with the CRFD is likely to involve the use of similar information to the disclosure required by the CFD and is therefore normally likely to meet the requirements of the 2022 Regulations.

However, despite the significant overlap, there are some key differences between the two regimes, in particular: 

• CRFD disclosures required by the UKLR are more detailed, are provided on a “comply or explain” basis and can be presented outside of the annual report.
• With CFD, all the required disclosures should be provided unless one of the available exemptions applies, and all the disclosures should be presented in the annual report.

The UK government is seeking to implement the ISSB sustainability disclosure standards (IFRS S1 and IFRS S2) into UK law in the form of new UK SRS. 

The UK SRS will require new areas of disclosure and will require greater depth of reporting, which will involve additional costs for business.

The government is consulting on the draft UK SRS. The consultation closes on 17 September 2025 and (if endorsed) the government aims to publish the final versions of the UK SRS in autumn 2025. The government will consult separately on who the UK SRS will apply to and what this means in terms of changes to the existing CFD regime under the CA 2006.  

See Quick Guide on the UK SRS.  

• Companies Act 2006 – Sections 414CA and 414CB
• Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 (SI 2022/31)
• Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022 (SI 2022/46)
• Government guidance (non legally binding)
• FRC review: Climate-related Financial Disclosures by AIM and Large Private Companies 

• Blog post: UK: FRC review of climate-related financial disclosures by AIM and large private companies
• Client briefing - UK reporting 2024/25 – recent developments and guidance for large unlisted companies and LLPs
• Quick Guide on CRFD regime under UKLR 
• Quick Guide on UK SRS