The Financial Conduct Authority (FCA) has issued a consultation paper (CP20/3) on proposals to improve climate change related financial disclosures by listed issuers. Institutional Shareholder Services (ISS) has published Climate Proxy Voting Guidelines and the European Financial Reporting Advisory Group (EFRAG) has published a report on climate change reporting by EU companies.
FCA consultation
The FCA is proposing to introduce a new disclosure requirement based on the Task Force on Climate-related Financial Disclosures (TCFD) June 2017 recommendations.
The requirement (new LR 9.8.(8)R), which would sit with the other annual financial report content requirements in the Listing Rules, would require premium listed companies to include in their annual report a statement setting out:
- whether the company has included “disclosures consistent with the four recommendations and the eleven recommended disclosures set out in Section C of the TCFD Final Report” and, if so, where those disclosures can be found; or
- where it has not done so, the reasons for not including such disclosures.
A new draft guidance note will accompany the rule changes.
The consultation paper says that the new requirements will come into force for financial years beginning on or after 1 January 2021. However the FCA has since announced that the closing date for the consultation has been delayed until 1 October 2020 (due to COVID-19) and so the date on which the changes take effect may also be delayed.
ISS Guidelines
The Climate Proxy Voting Guidelines published by ISS are based on principles developed from international frameworks such as the TCFD’s disclosure requirements. The ISS uses a scorecard approach to reflect various climate-related risk factors and may recommend votes against the re-election of board members responsible for climate-related risk oversight or for failures to sufficiently oversee, manage, or guard against material climate change related risks.
Climate change reporting by EU companies
The EFRAG report on climate change reporting by EU companies concludes that, despite a general improvement in the quality of climate change disclosures since 2017, there is a major gap between companies’ reporting practices and users’ expectations.
The report examines corporate reporting against both the mandatory requirements of the Non-Financial Reporting Directive, and the voluntary requirements of the TCFD recommendations. In particular it found that:
- there are varying levels of awareness and engagement amongst companies. Reporting is better in larger companies, and those in carbon-intensive and financial sectors; and
- whilst reporting on climate-related policies is generally good, there is more limited reporting on the monitoring of policies and performance against them.
The report recommends that companies avoid disclosure of generic information, and reporting without a materiality assessment. It also notes that there are few examples of companies that describe their board’s role in overseeing climate-related risks and opportunities.
