UK to Introduce Mandatory Climate-Related Financial Disclosures
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→UK to Introduce Mandatory Climate-Related Financial Disclosures
UK to Introduce Mandatory Climate-Related Financial Disclosures
One Asia Lawyers Compliance Newsletter
On 29th October 2021, the UK Government announced that large UK-registered companies will be required to disclose climate-related financial information on a mandatory basis from 6 April 2022. The UK Department for Business, Energy & Industrial Energy has published draft regulations to amend the Companies Act 2006, entitled “The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2021” (“Draft Regulations”).[1] The Draft Regulations will come into force subject to Parliamentary approval.
Companies that will be affected by the new disclosure requirements
The following companies will be subject to the new disclosure requirements:
・All UK companies that are currently required to produce a Non-Financial Information Statement – i.e. UK companies that have more than 500 employees and have either transferable securities admitted to trading on a UK regulated market, or are banking companies or insurance companies (Relevant Public Interest Entities) ・UK registered companies with securities admitted to the Alternative Investment Market (AIM)[2] with more than 500 employees ・UK registered companies which are not included in the above categories, which have more than 500 employees and a turnover of more than £500 million ・LLPs which have more than 500 employees and a turnover of more than £500 million
Contents of climate-related financial disclosures
The new Draft Regulations define “climate-related financial disclosures” to include the following types of information:
(a) a description of the company’s governance arrangements in relation to assessing and managing climate-related risks and opportunities; (b) a description of how the company identifies, assesses, and manages climate-related risks and opportunities; (c) a description of how processes for identifying, assessing, and managing climate-related risks are integrated into the company’s overall risk management process; (d) a description of— i. the principal climate-related risks and opportunities arising in connection with the company’s operations, and ii. the time periods by reference to which those risks and opportunities are assessed; (e) a description of the actual and potential impacts of the principal climate-related risks and opportunities on the company’s business model and strategy; (f) an analysis of the resilience of the company’s business model and strategy, taking into consideration different climate-related scenarios; (g) a description of the targets used by the company to manage climate-related risks and to realise climate-related opportunities and of performance against those targets; and (h) a description of the key performance indicators used to assess progress against targets used to manage climate-related risks and realise climate-related opportunities and of the calculations on which those key performance indicators are based.[3]
Location of reporting climate-related financial disclosures
Companies and LLPs subject to these new legislations will be required to report their climate-related financial information in the Non-Financial Information Statement (NFIS)[4] which forms part of their Strategic Report. However, for LLPs that are not currently required to produce a NFIS, they will be required to report this information within the Energy and Carbon Report.[5]
[1]The Draft Regulations are available at the following government website: https://www.legislation.gov.uk/ukdsi/2021/9780348228519
[2] The Alternative Investment Market (AIM) is a sub-market of the London Stock Exchange for emerging ventures.
[3] Under the Draft Regulations, this new definition will be included under Section 414CB of the Companies Act 2006.
[4] The ‘Non-Financial Information Statement’ is proposed to be renamed as the ‘Non-Financial and Sustainability Information Statement’, to better take into account the information that will now be required under the Strategic Report.
[5] Department for Busines, Energy & Industrial Strategy. Consultation Response: Mandatory climate-related financial disclosures by publicly quoted companies, large private companies, and LLPs (October 2021). Pages 11-12.
