The FCA has recently announced proposals to require premium listed issuers to provide climate-related disclosures in line with the Taskforce on Climate-related Financial Disclosures (TCFD), or explain why not. Disclosures would be effective for periods beginning on or after 1 January 2021.
The FCA has consulted before on climate change and their proposals are consistent with the UK Government’s announcement in its July 2019 Green Finance Strategy in that they expect listed companies and large asset owners to make disclosures in line with the TCFD Framework recommendations by 2022.
Increasingly, investors want to commit their money to companies and projects that will support the transition to a low-carbon economy. Investors therefore seek greater transparency about how issuers of listed securities may be affected by climate-related risks and opportunities. The impact of climate change on most, if not all, listed companies is expected to be complex. There is no distinction being made for size or type of company with premium listed securities. The FCA consider that the climate-related risks and opportunities are relevant to all companies and are likely to be material to most. Natural Resource companies are therefore not exempt and will likely face some of the most significant challenges under the reporting regime.
The TCFD’s recommendations for a globally recognised framework were published back in in 2017 with the aim of ensuring companies provided sufficient disclosure to help investors understand which companies face most challenge from climate-related risks, which ones are best prepared, and which ones are taking action.
The recommendations are broken down in to four core elements of climate-related financial disclosure: governance, strategy, risk management and metrics and targets. In making the new proposed regime a ‘comply or explain’ regime the FCA are seeking to recognise that the standards for disclosure and the understanding of climate change are evolving.
One of the key elements of the FCA’s proposals is:
- A new climate-related disclosure rule to be included in the Listing Rules to promote adoption of the TCFD’s recommendations and recommended disclosures. The proposed rule will require commercial companies with a UK premium listing to include a statement in their annual report setting out:
- whether they have made disclosures consistent with the TCFD’s recommendations and recommended disclosures in their annual report
- where they have not made such disclosures or have included them in a document other than their annual report, an explanation of why
- where in their annual financial report (or other relevant document) the various disclosures can be found.
At this stage, next steps are for interested stakeholders to provide feedback on the FCA’s proposals by 5 June with the aim for the Policy Statement and finalised rules and Technical note to be published later this year and become effective for periods beginning on or after 1 January 2021.
Given the effective date is now just over six months away, and considering the underlying nature of what Natural Resources companies do, this is not a lot of time for companies to really begin to work through the implications of their standards, establish what kind of data they need to report on and assess how to report.
Although this is a ‘comply or explain’ regime, investors are likely to be critical of companies that rely too heavily on the ‘explain’ element of the provisions rather than being able to provide robust, useful information to ‘comply’.