FCA Spots Gaps in Firms’ Progress on Climate Disclosure

Published on: 29 July 2022
by KnowESG
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The Financial Reporting Council (FRC) and Financial Conduct Authority (FCA) have praised premium listed companies for “significant progress” made in climate-related information provided in their financial reports.

However, the regulators say despite the progress further improvements are needed.

Premium-listed commercial companies are required to include a climate-related statement in their annual financial report in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

The FCA reviewed 170 companies at a high level and 30 companies in more detail and found a “significant increase in the quality” of companies’ climate-related disclosures.

However, it also found instances where companies said that they had made disclosures consistent with the TCFD’s recommended disclosures when it appeared they had not.

The FCA said it is considering these cases in more detail and may act as appropriate.

The regulators published two reports today (29 July) outlining steps firms have taken under the new climate disclosure rules.

Nearly 200 companies were reviewed by the regulators, and they found a “significant increase in the quantity and quality” of companies’ climate-related disclosures.

The FRC reviewed 25 larger companies impacted by climate change and found that they were able to provide many of the TCFD disclosures expected by the FCA’s Listing Rule and climate-related reporting in their financial statements.

It said this was a significant improvement from previous years. However, the FRC said there are several areas where companies will need to raise the quality of their disclosures in future years.

These include providing more information about the effect of climate change on different business sectors and geographies, balancing the discussion of climate-related risks and opportunities appropriately, and linking climate-related disclosures to other risk management and governance processes.

It also wants firms to explain how they have decided which climate-related information should be disclosed and how the effects of different global warming scenarios and their net-zero commitments may affect the valuation of their assets and liabilities.

FRC executive director of supervision Sarah Rapson said: 

“It is encouraging that many companies have stepped up their efforts in providing comprehensive and consistent disclosures on climate-related risks and opportunities, as well as the impact of climate on their financial statements, but there is still a lot of room for improvement.

“Together with the FCA, we will continue monitoring and supporting companies to make those improvements going forward.”

FCA director of ESG Sacha Sadan added: 

“We will continue to work with companies, their advisors and the FRC as they further develop their disclosures. We are committed to driving higher standards in the financial industry and we also encourage companies to look ahead to the future implementation of reporting standards in development by the International Sustainability Standards Board.”

Source: Money Marketing

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