The Financial Conduct Authority (FCA), the conduct regulator for financial services firms and financial markets in the UK, released today a final rule and guidance aimed at promoting better climate-related financial disclosures for UK premium listed commercial companies. The new rule will require affected companies to include a statement in their annual financial report stating whether the disclosures are consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD), and to explain if they are not consistent. The rule will apply for accounting periods beginning on or after January 1, 2021.
According to the Policy Statement summary, the FCA is introducing the rule following consultation indicating agreement by market participants and policymakers that improved disclosure regarding organizations’ exposure to climate-related risks and opportunities will lead to more informed pricing and drive investment towards greener projects and activities. The FCA stated:
“We see implementation of TCFD-aligned disclosures as a means of building companies’ capabilities to identify, assess, manage and disclose on climate-related risks and opportunities. We consider that this will pave the way to an eventual international standard for corporate reporting on climate-related and wider sustainability matters, integrated with financial reporting.”
While many companies have ramped efforts to operate more sustainably in recent years, and investors have increasingly pursued ESG integration in their investment decision-making, many often report that one of the greatest obstacles to these initiatives remains the lack of consistent, reliable data to know where to target efforts and to measure, analyze and track progress. The TCFD was established to help address these issues.
The TCFD was established by the Financial Stability Board in 2015, with the goal of developing consistent disclosure standards for companies, in order to enable investors and other stakeholders to assess the companies’ climate-related financial risk. The recommendations were published in June 2017.
The ruling comes in the context of efforts to ramp up climate-related reporting more broadly in the UK. In November, the UK’s Chancellor of the Exchequer Rishi Sunak announced plans to make the UK the first country in the world to mandate economy wide disclosures in line with the TCFD recommendations, aiming to require TCFD-aligned disclosures across non-financial and financial sectors of the UK economy by 2025.