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Climate reporting heats up with UK Government announcement of intention to make climate-related disclosures mandatory

  • Market Insight 03 December 2020 03 December 2020
  • UK & Europe

  • Climate Change

UK Government confirms intention to make climate-related disclosures aligned with those recommended by TCFD mandatory for large UK companies and financial institutions by 2025, with a significant portion of mandatory requirements in place by 2023.

Two recent developments set out a more detailed framework as to governmental and regulatory expectations of organisations and an indication as to the direction of travel and pace of change:

  • On 9 November 2020, the Chancellor announced that HM Treasury intends to make it mandatory by 2025 for large UK companies and financial institutions to make climate-related disclosures in line with those recommended by the Taskforce on Climate-related Financial Disclosures ("TCFD") in 2017;
  • On 10 November 2020, the UK's audit regulator, the Financial Reporting Council ("FRC"), published the findings of its Thematic Review of climate-related considerations by boards, companies, auditors, professional bodies and investors, together with a statement urging businesses to improve corporate reporting standards on climate change. The Thematic Review referred to investor support of TCFD-aligned disclosures, the further improvement needed, and increasing investor expectation that auditors challenge and test management assumptions.

We consider below the issue of TCFD-aligned disclosures, how the requirements in this area may develop over the next five years and what seems to be a shift away from the "comply or explain" approach on which the Financial Conduct Authority ("FCA") has been consulting (CP20/3), towards a mandatory regime more in line with that being considered within the pensions arena (for large occupational schemes). We look at the potential implications of this for UK companies, financial institutions and their boards, in circumstances where the UK financial services sector is now identified as having a crucial role to play in accelerating the transition to net-zero emissions.

The decision to make the TCFD's 2017 recommendations mandatory

The Chancellor's announcement of more robust environmental disclosure standards will make the UK the first G20 country to make TCFD-aligned disclosures fully mandatory across the economy by 2025.

This announcement was accompanied by the publication of an Interim Report and Roadmap by the UK's own TCFD Taskforce, setting out an indicative path for implementing mandatory disclosures, many of which, it is proposed, will come into force by 2023.

The UK Joint Government-Regulator TCFD Taskforce, chaired by HM Treasury, is made up of regulators and government departments including the Bank of England, the Prudential Regulation Authority ("PRA"), the Department for Business, Energy and Industrial Strategy ("BEIS), the Department for Work and Pensions ("DWP"), the FCA, the FRC and The Pensions Regulator ("TPR").

The Interim Report follows the UK Government's 2017 endorsement of the TCFD's recommendations and its 2019 "expectation" (forming part of its Green Finance Strategy) that UK listed issuers and large asset owners would be making disclosures in line with TCFD's recommendations by 2022.

As many will know, the TCFD's June 2017 Final Report set out overarching recommendations in four areas: (i) governance; (ii) strategy; (iii) risk management; and (iv) metrics and targets. Beneath these sit 11 recommended disclosures requiring, for example, that the organisation describe the climate-related risks and opportunities it had identified, the processes for identifying, assessing and managing climate-related risks, as well as the metrics and targets used to assess climate-related risks and opportunities. In particular, the recommended disclosures include a description of the resilience of the organisation's strategy, taking into account different climate-related scenarios (including a 2C or lower scenario), as well as disclosures as to greenhouse gas emissions. Of particular relevance for D&Os, are the governance disclosures relating to: (i) board oversight of climate-related risks and opportunities; and (ii) management's role in assessing and managing climate-related risks and opportunities.

To date, some 1,600 organisations worldwide are reported to have formally indicated their support for the TCFD's 2017 recommendations. The concern of the UK TCFD Taskforce, however, is that UK organisations had not gone that step further in actually making the "decision-useful disclosures that markets and other stakeholders need to inform their business risk and investment decisions". As noted in the Interim Report, in 2019, the FCA observed that, on average, only one third of premium-listed companies were making the relevant reports. Further, of the largest occupational pension schemes, only 13% of respondents to an information request from the Minster for Pensions and Financial Inclusion, in October 2019, were able to confirm that they were making disclosures in line with all of TCFD's recommended disclosures or expressed a clear intention to do so in the next year. While a "Dear CEO" letter, published by the PRA in July 2020, observed in relation to those entities that it regulates that "most firms are making good progress", it was recognised that "best practice continues to evolve".

The Roadmap sets out an "indicative path" for the introduction of regulatory rules and legislative requirements over the next three to five years necessary to implement the proposals.

Who is affected, when and how?

Given the work already ongoing in this area within different sectors and the different remits of those regulators and governmental departments involved, the Interim Report and Roadmap do not seek to present a single set of proposals. Rather, the Interim Report recognises that "quality TCFD-aligned disclosure is a journey for every organisation and that different sectors may need to go at different paces". It acknowledges that "organisational characteristics" will need to be assessed to ensure "proportionate implementation", noting that the benefits of mandatory disclosures are likely to increase with an organisation's size and that the costs of putting processes in place to meet these disclosures may be higher proportionally for smaller organisations.

The Interim Report identifies seven categories of organisation for which a coordinated strategy toward TCFD-alignment is proposed:       

  • UK listed commercial companies;
  • UK-registered large private companies;
  • Banks and building societies;
  • Insurance companies;
  • UK-authorised asset managers;        
  • Life insurers and FCA-regulated pension schemes; and
  • Occupational pension schemes.

There are, of course, overlaps within the above categories (for example, UK-listed banks may fall into two or more of these categories).

Included at the end of the Interim Report are one (or two) page summaries relevant to each of the different sectors above, identifying the current status of the proposals, the potential scope of required disclosures, the mechanism by which those proposals may in due course be implemented, the relevant timeframes and coverage.

For UK listed companies, the FCA launched a consultation in March 2020 outlining proposals for TCFD-aligned disclosure for premium listed commercial companies on a "comply or explain" basis. While the outcome of that consultation has not yet been published, the Interim Report states that the FCA plans to (i) implement the new TCFD-aligned disclosure rule with effect from 1 January 2021; (ii) consult in the first half of 2021 on proposed new rules for a wider scope of issuers to be subject to this rule (coordinating as appropriate with BEIS, as discussed in relation to private companies below); and (iii) consider consulting on making the disclosures mandatory.

As for UK-registered large private companies, BEIS proposes to issue a public consultation in early 2021 on a proposed new regulation in the Companies Act 2006, to require that such companies make TCFD-aligned disclosures in their annual report and accounts by 2022. It remains to be decided which companies will fall within the scope of the requirements, but options under consideration include companies asked to report against a corporate governance code (such as the Wates Principles) or those who fall within a revised definition of Public Interest Entities as a result of wider audit and corporate governance reforms. The case for expanding the scope of the regulations is then to be reviewed in 2023.

Banks, building societies and insurance companies regulated by the PRA are already subject to the supervisory expectations of Supervisory Statement 3/19 ("SS3/19"), with a deadline of 31 December 2021 communicated in the PRA's Dear CEO letter of 1 July 2020 for firms to have "fully embedded their approaches to managing climate-related financial risks".  Many will also be subject to the proposed disclosure requirements from the FCA and BEIS discussed above. The PRA intends to perform a review of published disclosures in 2022 to inform its decision as to whether to introduce further measures (subject to consultation).

Also in early 2021, a consultation is to take place focused on the disclosures made to clients and end-investors (rather than shareholders) of UK-authorised asset managers, life insurers and FCA-regulated pension schemes. It is anticipated that the proposals would include disclosure of strategy, policies and procedures at the firm level, including recommended disclosures as well as more targeted disclosures at the fund of portfolio level, with consideration to be given to international initiatives so as to be consistent with, and complementary to, initiatives deriving from the EU's Sustainable Finance Action Plan.  It is envisaged that new FCA rules would come into force in 2022, with implementation phased by size of firm beginning in 2022 (with very small firms excluded).

Finally turning to occupational pension schemes, the Interim Report refers to proposed amendments to the Pension Schemes Bill (which is currently making its way through Parliament) to make regulations and issue statutory guidance to implement TCFD-compliant reporting for large occupational pension schemes with assets in excess of £1bn and all master trusts (with a phased introduction later for other schemes).

The timeline of planned or potential regulatory actions or legislative measures, more fully set out in the Interim Report and Framework, is as follows:





Occupational pensions schemes (>£5bn)


Banks, building societies and insurance companies (deadline for supervisory expectations)


Premium listed companies

Occupational pensions schemes (>£1bn)


Largest UK-authorised asset managers, life insurers and FCA-regulated pension providers


UK-registered companies


Wider scope of listed companies

Other UK-authorised asset managers, life insurers and FCA-regulated pension providers


Occupational pensions schemes (subject to review)


Potential further refinements to measures across categories, including in response to evolving best practice

It is for each sectoral regulator (for example, the FCA) to consider the thresholds for the implementation of disclosures within each category of organisation. This is an area where we can expect to see ongoing engagement and consultation with industry as the strategies outlined are developed in the coming years. In particular, the Interim Report refers to the possibility of the current principles-based approach being supplemented by more detailed, quantitative disclosures in future.


For recommendations made just three years ago, the move in this jurisdiction towards mandatory TCFD-alignment is somewhat of a watershed moment, not only due to its wholesale endorsement but also in respect of the challenging timeline proposed.  Adding in the increasing pressure being brought to bear on corporates and their boards by institutional investors and pressure groups (and, in some jurisdictions (most notably the US) litigation challenges) as to the sufficiency and accuracy of climate-related policies, planning and corporate disclosures, the direction of travel seems increasingly clear.

However, as the Interim Report and Roadmap illustrate, there is a good deal of work to be done to draw those strands together and implement them across the different sectors in a short period of time. This is an area in which we can expect considerable engagement, consultation and change over the coming years and the immediate concern for organisations and their boards will, therefore, be one of governance and engagement with the consultations in their particular sector.

We will be tracking, summarising and commenting on developments in line with the indicative roadmap.


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