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New FCA rule puts climate-related disclosures firmly on the agenda for 2021

  • Legal Development 19 January 2021 19 January 2021
  • UK & Europe

  • Insurance & Reinsurance

On 21 December 2020, the Financial Conduct Authority (“FCA”) confirmed the introduction of a new rule and guidance to promote better climate-related financial disclosures for UK premium-listed commercial companies.

New FCA rule puts climate-related disclosures firmly on the agenda for 2021

The new Listing Rule requires that UK incorporated and overseas commercial companies with a premium listing include a statement in their annual financial report which sets out whether their disclosures are consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (“TCFD”), or to explain if they have not done so. 

The new rule will apply for accounting periods beginning on or after 1 January 2021, such that the first annual financial reports subject to this rule will be published in spring 2022. 

According to the FCA's Policy Statement, and with reference to data as at 7 December 2020, the rule will apply to 460 companies on the FCA Official List, but not to companies with a standard listing. Together, those premium-listed companies account for approximately two thirds of market capitalisation on the Main Market.

We discuss the FCA Consultation (CP20/3), Policy Statement (PS20/17), the new Listing Rule 9.8.6, associated guidance, and the Technical Note (Appendix 2 to PS20/17) below.

New Listing Rule 9.8.6(8)

The new rule introduced within Listing Rule 9.8 requires that commercial companies with a UK premium listing (including sovereign-controlled commercial companies) include a statement in their annual financial report setting out:

  1. whether the company has included, in its annual financial report, climate-related financial disclosures consistent with the TCFD’s 4 recommendations and 11 recommended disclosures;
  2. where the company has:

(i) made such disclosures but included some or all of these disclosures in a document other than the annual financial report, a description of where those disclosures can be found and an explanation of why those disclosures have not been made in the annual financial report;

(ii) not made such disclosures either in its annual financial report or other document, the reasons for not making such disclosures and any steps the company is taking or plans to take in order to be able to make those disclosures in the future, and the timeframe within which the company expects to be able to make those disclosures;

  1. where within the company’s annual financial report or other document the disclosures can be found.

The new rule is accompanied by guidance to assist companies in determining whether their disclosures are consistent with the TCFD’s recommendations and recommended disclosures. The guidance also clarifies the limited circumstances in which the FCA expects companies to explain non-compliance rather than disclose (for example, where the company faces transitional challenges in obtaining relevant data or embedding relevant modelling or analytical capabilities).

The FCA also issued a Technical Note (which applies with immediate effect from publication) clarifying existing disclosure obligations in EU legislation (which all continue to apply in the UK after the end of the Brexit implementation period) and the FCA Handbook on a wider scope of listed issuers in relation to climate change and other environmental, social and governance (ESG) matters under relevant sections of the Market Abuse Regulation, the Prospectus Regulation, and the Disclosure Guidance and Transparency Rules. Notably, the Technical Note impacts a wider scope of companies than the new Listing Rule.

The FCA Consultation and resulting Policy Statement

The finalised rule, introduced by the FCA, is broadly as anticipated by the Consultation commenced in March 2020, albeit with some additional guidance in light of respondent feedback.

The FCA Policy Statement indicates that there was majority support among respondents for the rule to apply initially only to commercial companies with a UK premium listing. However, the FCA also refers to support among the majority of respondents to extend the scope to other listed companies in due course, albeit with many respondents seeking clarity as to the timing of any such extension.

Broadly, respondents agreed that it was helpful for the reporting obligations to be as consistent as possible with international principles, frameworks and standards, to be effected by way of reference to the TCFD’s report and guidance materials within the FCA rule and guidance.

As to the issue of “comply or explain”, as opposed to a mandatory obligation, the FCA reports that there was support for this flexibility among most respondents (although this was opposed by those groups representing investors or civil society stakeholders who seek more immediate change). Many, however, saw “comply or explain” as an interim step towards mandatory disclosure obligations and encouraged the FCA to clarify the timing of next steps.

The FCA's proposal in the original Consultation that third party verification or assurance for climate-related disclosures should not be required for now also received support from the majority of respondents. As such, this is the FCA's position for now, but it has put a marker down that the point will need to be reviewed in due course, pending (for example) the outcome of ongoing reviews of the role of audit in the UK and the emergence of international reporting standards for sustainability. Until then, the FCA notes that it is, of course, open to in-scope companies to obtain third party verification or assurance on a voluntary basis.


The new FCA rule is one step forward on the Roadmap issued by the UK's TCFD Taskforce, as discussed in our previous article.

The FCA propose to consult further in the first half of 2021 on extending the application of the rule to a wider scope of listed issuers (likely to include all issuers of standard listed shares, excluding listed funds). The FCA advise that they will be coordinating with the Department for Business, Energy and Industrial Strategy (BEIS), which intends to consult on the proposed introduction of disclosure obligations in the Companies Act 2006 for certain UK registered companies.

This step from the FCA likely sets the tone for developments in this area over the course of 2021.


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