UK / EU / US / China / Brazil - Corporate Reporting of Environmental Matters under the Companies Act 2006

  • Étude de marché 11 janvier 2023 11 janvier 2023
  • Asie-Pacifique, Amérique du Nord, Royaume-Uni et Europe

  • Climate change risk

Year on year, the emphasis on climate-related issues increases, and as COP27 came to an end, emphasis has been placed on who can make the most substantial change.

In the UK a positive burden is placed on large corporate entities and financial institutions to report on how the company is managing issues such as environmental performance and climate-related risks at Board, senior management and whole-company levels.

As a starting point, section 172(1)(d) of the Companies Act 2006 imposes a duty on directors to promote the success of a company, having regard to several broader factors including the impact of the company’s operations on the environment. This applies to all companies, no matter what size. However, combined with the larger environmental and social significance of corporate reporting for climate change, rules and regulations have since been imposed to place a greater responsibility on the largest companies.

UK legislation to date:

  1. Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013;
  2. Companies, Partnerships and Groups (Accounts and non-financial reporting) Regulations 2016;
  3. The Companies (Miscellaneous Reporting) Regulations 2018;
  4. The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 and the Limited Liability Partnership (Climate-related Financial Disclosure) Regulations 2022 ("The 2022 Regulations") 

The 2022 Regulations

The UK is the first G20 country to make it mandatory for Britain’s largest businesses to disclose their climate-related risks and opportunities, in line with recommendations from the Taskforce on Climate-related Financial Disclosures (“TCFD”). For financial years starting on or after 6 April 2022, over 1,300 of the largest UK-registered companies and financial institutions are obliged to disclose climate-related financial information on a mandatory basis in their annual reports.

The aim is to increase the quantity and quality of climate-related reporting across the UK business community, including among some of the most economically and environmentally significant companies. This will ensure business consider the risks and opportunities they face as a result of climate change and encourage them to set out their emission reduction plans and sustainability credentials.

The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 amend sections 414C, 414A and 414CB of the Companies Act 2006 to place requirements on certain publicly quoted companies and large private companies to incorporate TCFD-aligned climate disclosures in their annual reports. The Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022 amend parts 5 and 5A of the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 to place requirements on certain LLPs to incorporate TCFD-aligned climate disclosures in their annual reporting.

Who’s affected?

  • All UK companies that are currently required to produce a non-financial information statement, being UK companies that have more than 500 employees and have either transferable securities admitted to trading on a UK regulated market or are banking companies or insurance companies (Relevant Public Interest Entities (“PIEs”));
  • UK registered companies with securities admitted to AIM, which have more than 500 employees;
  • UK registered companies not included in the categories above, which have turnover of more than £500m;
  • Large LLPs which are not traded or banking LLPs, and have more than 500 employees and a turnover of more than £500m; and
  • Traded or banking LLPs which have more than 500 employees.

What should be disclosed?

  1. A description of the governance arrangements of the company or LLP in relation to assessing and managing climate-related risks and opportunities;
  2. A description of how the company or LLP identifies, assesses and manages climate-related risks and opportunities;
  3. 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;
  4. A description of –
    1. The principal climate-related risks and opportunities arising in connection with the operations of the company or LLP; and
    2. The time periods by reference to which those risks and opportunities are assessed;
  5. 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;
  6. An analysis of the resilience of the business model and strategy of the company or LLP, taking into consideration of different climate-related scenarios;
  7. A description of the targets used by the company or LLPs to manage climate-related risks and to realise climate-related opportunities and of performance against those targets; and
  8. 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.

Companies should include these disclosures in what was previously the Non-Financial Information Statement, now the Non-Financial and Sustainability Information Statement in the Strategic report. The duty of disclosure on company directors includes discretion to omit some or all of the certain disclosure requirements (namely e, f, g and h ) of the regulations where these are not considered necessary for an understanding of the business, but if information is omitted as a result of relying on this exemption, directors must provide a clear and reasoned explanation of their belief as to why it is appropriate to omit the information.

An important aspect to the success of these regulations is the role of regulators, such as the FCA and CMA, in enforcing and implementing them. The underlying issue and catalyst for the regulations is a global social imperative to save the planet, and therefore the power lies in the hands of the world of finance and governments to make a change. With this in mind, the FCA have issued a paper on its expectations and strategy on ESG reporting and actions expected of regulated UK companies. Further, the CMA published a Green Claims Guide in 2021 to help businesses comply with the law and it is carrying out a review of misleading green claims this year. It has said it will take action against offending firms.


The aim of the 2022 Regulations was to apply a common set of requirements aligned with the TCFD recommendations, to provide UK companies with a uniform way to assess how a changing climate may impact their business model and strategy, and ensure they are well placed to harness opportunities with the UK’s transition to net zero. However, until financial years come to an end, it is unclear how successful they will have been. Further, whether the criteria are consistent and properly defined is up for debate. The UK, EU and US positions all differ slightly and for companies with an international nexus, it may be difficult to determine the obligations placed upon them.

Consequently, an inconsistent and unclear approach will allow companies to hide their failures in continuity and transition, which will mean that they are significantly devalued as an asset in any pension or other portfolio as climate legislation bites and investment stops. It is misleading the market as to how robust the business continuity plans are. In addition, it will mean that investment is still being made into companies that are making long term harmful developments such as mines, dirty power plants and heavy industry. For example, data, including from the ratings agencies, should not be trusted as their data on companies is thoroughly inconsistent with no standardised criteria.

EU Position

The EU has three key pieces of legislation regulating climate-related disclosures:

  • The Non-Financial Reporting Directive 2014 (“NFRD”);
  • The Sustainable Financial Disclosure Regulation 2019 (“SFDR”); and
  • The Corporate Sustainability Reporting Directive 2022 (“CSRD”).

The NFRD required public-interest companies with more than 500 employees to report on how they deal with issues such as environmental pollution, social responsibility, human rights and diversity. The SFDR then laid down sustainability disclosure obligations regarding investments for end-investors in financial markets. Recently, the EU have evidenced a strong adherence to this cause with the implementation of the CSRD from 2024. This Directive will significantly broaden the scope of entities that will have to report, capturing all listed entities as well as large companies that meet two of the three following criteria:

  1. More than 250 employees;
  2. More than €40 million net turnover;
  3. More than €20 million on the statement of financial position.

US Position

In May 2022, the Financial Accounting Standards Board (“FASB”) in the US decided to add a project to its technical agenda on the recognition, measurement, presentation, and disclosure requirements for companies that participate in compliance and voluntary programs that lead to the creation of environmental credits. The credits include, but are not limited to, those created under compliance programs, such as cap and trade, and baseline allowance program, as well as renewable energy credits and certificates, renewable energy credits and certificates, renewable identification numbers and carbon offset credits. In the same month, the SEC released its climate disclosure proposal, requiring climate disclosures in annual reports and registration statements as early as for fiscal year 2023. The SEC has also recently proposed new rules on the language a mutual fund can use to describe itself as eco-friendly.

Mainland China Position

ESG reporting in Mainland China has seen rapid growth in recent years, as the country seeks to shift the economy towards the vision of a more sustainable future.

We set out below some key (but not exhaustive) regulations in Mainland China involving ESG reporting.

  • In 2016, seven governmental bodies, including the People’s Bank of China (China’s Central Bank) and the China Securities Regulatory Commission (“CSRC” - China’s top securities regulator), jointly issued the Guiding Opinions on Building a Green Finance System, laying a foundation for the establishment of a mandatory environmental information disclosure system for listed companies.
  • In 2017, the CSRC and the Ministry of Environmental Protection signed the Cooperation Agreement on Jointly Developing Environmental Information Disclosure of Listed Companies.
  •  In 2018, the CSRC revised the Listed Company Governance Code, stipulating that listed companies have the responsibility to disclose environmental information.
  • On 1 March 2021, the city of Shenzhen started implementing the Regulations on Green Finance of the Shenzhen Special Economic Zone, which set out requirements on the subjects, basis, time, and form of environmental information disclosure by financial institutions in Shenzhen.
  • On 28 June 2021, the CSRC revised the format standards for annual reports and semi-annual reports of listed companies, which demarcated relevant provisions on environmental and social responsibility as an independent chapter to highlight the environmental protection and social responsibility of listed companies.
  • On 21 December 2021, the Ministry of Ecology and Environment released the Measures for the Administration of Legal Disclosure of Enterprise Environmental Information to regulate enterprises’ disclosure of environmental information.
  • In June 2022, the China Banking and Insurance Regulatory Commission issued the Green Finance Guidelines for the Banking and Insurance Industry, under which the banking and insurance institutions shall make public their green finance strategies and policies, fully disclose the development of green finance and disclose relevant information for finance or investment cases involving significant environmental, social and governance risk impacts.

Among the aforementioned laws and regulations, the Measures for the Administration of Legal Disclosure of Enterprise Environmental Information (the “Measures”) may be said to be the most representative one. The Measures mandate major polluters, publicly listed companies and bond-issuing companies/their subsidiaries (if they have been penalised for ecological or environmental violations the previous year), amongst others, to submit annual reports detailing a range of environmental information. The Measures represent Mainland China’s push to standardise and mandate ESG reporting for companies as the country aims to achieve climate emissions and other environmental targets.

Brazil Position

There are no specific provisions under the corporate legislation imposing reporting obligations on companies for environmental matters.

There are, however, recent regulations which were issued by the Brazilian Central Bank and the National Monetary Council in September 2021, requiring financial institutions and corporations regulated by the Brazilian Central Bank, to disclose certain information on environmental, social and corporate governance (ESG) practices.

For example, Resolution nº. 4.945/2021 of the National Monetary Council created the Social, Environmental and Climate Responsibility Policy (PRSAC). The PRSAC must be issued by the financial institutions and companies with shares traded on the stock market and consists of a set of guidelines for social and environmental/climate matters, which must be disclosed to the public and observed by the institution in the conduct of its business and activities.

A new regulation establishing the revision of the content of the Reference Form, which is a mandatory document for making information available to the market on companies with shares traded on the stock exchange, has also been enacted recently. This Resolution requires the disclosure of information on environmental, social and corporate governance (ESG) practices by companies trading in the Brazilian stock market.

The above set of rules aims to bring more transparency to the Brazilian market on the environmental performance of financial institutions and large companies.

However, the motive behind the new regulations is fundamentally good. When so much power for change is vested in these large entities, countries must start somewhere in holding them accountable for their actions. It is hoped that key personnel will uphold integrity in their companies as a force for good in tackling climate change. However, clarity in the regulations is vital, as well as the role of regulators in clamping down on climate-related reporting. Therefore, success will begin to be seen throughout 2023 as financial years come to an end and the regulations start to take shape.


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