Mandatory Climate related financial disclosures based upon precises of extracts from The Department for Business, Energy & Industrial Strategy document dated October 2021 entitled Consultation response: Mandatory climate-related financial disclosures by publicly quoted companies, large private companies, and LLPs
Context
From 24th March to 5th May 2021, the Department for Business, Energy and Industrial Strategy (BEIS) consulted on proposals to introduce mandatory climate-related financial disclosures by publicly quoted companies, large private companies and LLPs.
The consultation sought views on the scope of requirements, the depth of requirements, the appropriate guidance, and an appropriate monitoring and enforcement regime.
To support our transition to net zero, the Government considers it important to ensure that companies with a material economic or environmental impact or exposure assess, disclose and ultimately take action on climate-related risks and opportunities. This approach was reiterated in the recently published Net Zero Strategy – a comprehensive roadmap outlining measures to transition to a green and sustainable future.
Key Consultation Questions Asked
In total 17 questions were posed. There were approximately 100 responses to most of the questions. Some of the most important questions were:
QUESTION 1: Do you agree with our proposed scope for companies and LLPs?
Government response – The proposed scope is:
- All UK companies that are currently required to produce a non-financial information statement
- UK registered companies with securities admitted to AIM with more than 500 employees
- All UK registered companies and LLPs which have more than 500 employees and a turnover of more than £500m
QUESTION 4: Do you agree that the Strategic Report is the best place for the disclosure of climate-related financial information by companies?
Government response – We will:
- Implement the requirement as planned, and require companies to disclose their climate-related Consultation response
- Mandatory climate-related financial disclosure 12 financial information in what is currently called the Non-Financial Information Statement (NFIS) of the Strategic Report
- For companies not currently required to produce a NFIS, we will require them to just produce the climate-related financial disclosure elements of that statement
- We also propose to change the name of the NFIS to the Non-Financial and Sustainability Information Statement
QUESTION 8: Do you agree with our proposal that scenario analysis will not be required within a company or LLP’s annual report and accounts?
Government response – The feedback to Question 8 and related questions has led to a reconsideration of our proposal on scenario analysis:
- Given the clear message from stakeholders on the importance of scenario analysis for the policy to meet our stated ambitions. Our final regulations will include a requirement for in scope companies and LLPs to include an analysis of the resilience of the company’s business model and strategy, taking into consideration different climate-related scenarios
- In associated guidance, we will be clear that a qualitative assessment of resilience against different scenarios will be sufficient to meet the obligation
Conclusion
As a result of the consultation process, two policy changes have been made. The introduction of a qualitative scenario analysis requirement, and a closer alignment of the regulations to the language used in the TCFD (note 1) recommendations themselves.
These changes will ensure the regulations are better equipped to meet our stated policy objectives. The inclusion of qualitative scenario analysis influences the costs of this policy on companies and LLPs, and this is reflected in the final stage Impact Assessment.
The final stage Impact Assessment reflects our chosen policy of mandatory qualitative scenario analysis from 2022 (Option 1b within that Impact Assessment). We believe that this option directly responds to stakeholder feedback on the issue, whilst also balancing our stated policy objectives to increase the quantity and quality of climate-related financial disclosures.
For full text of the original BEIS document, Please Click Here
Note 1 TCFD
The Financial Stability Board created the Task Force on Climate-related Financial Disclosures (TCFD) to improve and increase reporting of climate-related financial information.