New legislation will come into effect from 6th April 2022 that will require the largest UK registered companies to make climate-related financial disclosures, demonstrating that they have considered the risks and opportunities they face due to climate change. The Government expects these measures will ultimately support investment decisions that align with the UK’s net zero target and reduce climate related financial risks.
BEIS has confirmed that full guidance on the mandatory regime will be published early in 2022. The new requirements will cover the four pillars of the existing recommendations from the Task Force on Climate Related Financial Disclosures (TCFD). These are Governance, Strategy, Risk Management, Metrics and Targets. However, not all TCFD recommendations will be included. For example, Scope 3 will not be mandatory, but this might be revisited in due course.
Companies will be required to include the mandatory disclosures in their financial year that starts after 6th April. This means that for companies that have a financial year starting from 1st April, the first reporting year would be 2023/2024.
The new legislation will apply to:
- UK companies that produce a non-financial information statement being those that have more than 500 employees and have transferable securities (i.e. shares) trading on a UK regulated market, or are banking or insurance companies
- All UK companies listed on AIM with more than 500 employees
- All other UK registered companies with a turnover of more than £500m and have more than 500 employees.
- All LLPs with a turnover of more than £500m and more than 500 employees.
The turnover and employee numbers listed above will be applied at group level.
The new regime for mandatory climate disclosures will sit alongside the existing Streamlined Energy and Carbon Reporting (SECR). BEIS is aware of the need for better alignment between the two regimes, to which it is giving consideration. Any changes to the SECR regime to facilitate that alignment will require a separate consultation process and it is intended that any changes to SECR will be implemented by 2023. Of course, some companies that are captured in SECR might not be large enough to meet the threshold for the mandatory climate related financial disclosures.
It is recommended that the relevant companies start to engage with the government guidance as soon as it is published and to consider any existing processes they might already have in place, that relate to the four TCFD pillars.
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