Reporting requirements explained: Climate-Related Financial Disclosure Regulations
Under the Climate-Related Financial Disclosure Regulations (CFD) 2022, from 6 April 2022, the UK’s largest companies and LLPs were required to include climate-related financial disclosures in a ‘non-financial and sustainability statement’. This needs to be included within their strategic reports or, for LLPs, their energy and carbon reports. The Taskforce on Climate-related Financial Disclosures (TCFD) has been adopted as the basis for these required disclosures.
Entities in scope
Quoted companies
UK-registered companies with 500+ employees currently trading on a UK-regulated market or the Alternative Investment Market (AIM). However, some disclosure exemptions are available for AIM-listed entities meeting certain criteria.
Premium and standard listed entities already making TCFD disclosures under the listing rules are already likely to be meeting the requirements of CRDR. However, there are distinctions; CRDR applies on a mandatory basis not the “comply or explain” basis of the listing rules, and the CRDR requires disclosures to be made in the annual report, which the listing rules do not.
Public interest entities (PIEs)
UK-registered companies and LLPs with 500+ employees with either a listed financial instrument or operating in the banking and insurance industries.
Other LLPs
UK-registered LLPs with 500+ employees and over £500 million in annual turnover.
Private companies
UK-registered private companies with 500+ employees and over £500 million in annual turnover.
Special requirements for groups of companies
- Eligible UK-registered subsidiary companies will be exempt from the reporting requirements if their parent company is UK-registered and has included a non-financial and sustainability statement in its group strategic report.
- Eligible UK-registered subsidiary companies with an overseas-registered parent company will not be exempt from the reporting requirements.
- The reporting parent company must report on its worldwide operations within the non-financial and sustainability statement in its group strategic report, including UK and overseas operations.
What do you need to report?
Entities falling into scope are required to report key disclosures which fall broadly under four pillars:
1. Governance
The organisation’s governance around climate-related risks and opportunities.
2. Strategy
The actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning. This should include an analysis of the resilience of the company’s business model and strategy.
3. Risk management
The processes used by the organisation to identify, assess and manage climate-related risks.
4. Metrics and targets
The metrics and targets used to assess and manage relevant climate-related risks and opportunities.
Where does TCFD come into this?
TCFD was used as the basis for developing the Climate-Related Disclosure Regulations reporting requirements, with the required disclosures of the Climate-Related Disclosure Regulations largely mirroring TCFD’s 11 recommended disclosures. As such, directors will be able to benefit from the vast resources and guidance published by TCFD to support the writing of their non-financial and sustainability statements.
Mapping for the Climate-Related Disclosure Regulations against TCFD’s 11 recommended disclosures
When do you need to report by?
Companies and LLPs meeting the eligibility criteria will need to include the disclosures required by the Climate-Related Disclosure Regulations in the financial statements for years commencing after 6 April 2022.
For more information, please contact us or check our environmental, social and governance (ESG) page.