Climate-related disclosures extended to standard listed issuers

Premium listed companies must make climate-related disclosures, on a comply or explain basis, by reference to the TCFD recommendations for the first time in 2022. The FCA has now confirmed that standard listed issuers will be subject to the same climate-related disclosure obligations as premium listed companies (FCA Press Release and Policy Statement 21/23).

The rules apply to standard listed issuers of equity shares as originally proposed but, following consultation, have also been extended to standard listed issuers of global depositary receipts (GDRs) and shares other than equity shares. Standard listed investment entities and shell companies are still excluded. The rules apply for accounting periods beginning on or after 1 January 2022.

See Hot news: More climate-related disclosures for listed companies for the rules that already apply for premium listed companies.

The FCA has also published its final rules on new climate-related disclosure requirements for asset managers, life insurers, and FCA-regulated pension providers which align with the TCFD's recommendations. See FCA final rules on climate-related disclosures by asset managers.

Which companies are in scope?

The new rules apply to:

• all issuers of standard listed equity shares (as included in LR 14),
• standard listed issuers of GDRs representing equity shares (GDR issuers); and
• standard listed issuers of shares other than equity shares,

other than investment entities and shell companies (which the FCA has confirmed includes special-purpose acquisition companies). They also do not apply to debt and debt-like securities but the FCA will continue to engage with stakeholders to gather more information about whether there should be a proportionate and tailored regime for these securities.

The FCA is not expecting there to be any conflict with overseas companies' home market rules, as the TCFD's recommendations are an internationally accepted framework.

The FCA notes that whilst standard listed investment entities will not fall within these rules, some of them will fall within the scope of the new rules for asset managers.

Shell companies are excluded given their simple balance sheets and as they typically do not have established governance, strategy, and risk management arrangements.

What are the new disclosure requirements?

Companies in scope must state, in their annual financial report:

• whether they have made climate-related financial disclosures consistent with the TCFD recommendations and recommended disclosures;

• where they have not made disclosures consistent with some or all of the TCFD recommendations and/or recommended disclosures, an explanation of why and any steps they are taking/plan to take to make those disclosures in the future and the timeframe within which they expect to be able to make those disclosures;

• where some or all of their disclosures are in a document other than the annual financial report, an explanation of why; and

• an explanation of where in the annual financial report (or other relevant document) the various disclosures can be found.

The new rule (and associated guidance) mirrors the structure and wording of the rules and guidance for premium listed companies in LR 9.8.6.

As originally proposed, the FCA will consider whether to make these disclosures mandatory once the International Sustainability Standards Board (ISSB) has developed its international reporting standards, which could be by the end of 2022.

The government is also going to introduce new rules that will require certain companies and LLPs to make climate-related disclosures (see Climate-related disclosures to be mandatory for large companies.) The FCA notes that the government will publish a Q&A document in early 2022 that will clarify how these new Companies Act disclosures interact with the Listing Rules disclosures.

What are the TCFD recommendations?

The Financial Stability Board established the TCFD to develop recommendations for more effective climate-related disclosures that could promote more informed investment decisions.

The TCFD recommendations on climate-related financial disclosures (the Recommendations) were published in 2017. The Recommendations are intended by the TCFD to be adoptable and applicable to organizations across different sectors and jurisdictions. The TCFD states that the Recommendations will solicit decision-useful, forward-looking information that can be included in financial filings. There are 11 Recommendations, structured around four themes: Governance; Strategy; Risk management and Metrics and targets.

The Listing Rules list the TCFD guidance materials that need to be considered in connection with the TCFD recommendations. The final rules have, however, been updated to refer to the latest version of the TCFD implementation annex and new guidance on metrics and, targets and transition plans, both of which were published in October 2021. (These changes also apply for premium listed companies from 1 January 2022.)

What guidance has been given?

The same guidance has been given as for premium listed companies to help companies determine whether their disclosures are consistent with the TCFD's recommendations and recommended disclosures.

When determining whether its climate-related financial disclosures are consistent, a company in scope:

• is expected to undertake a detailed assessment of those disclosures, taking into account various TCFD guidance materials which (as noted above) are set out in the Listing Rules;
• must consider whether those disclosures provide sufficient detail to enable users to assess the listed company's exposure and approach to addressing climate-related issues; and
• must carry out its own assessment to ascertain the appropriate level of detail to be included in its climate-related financial disclosures, taking into account factors such as (1) the level of its exposure to climate-related risks and opportunities; and (2) the scope and objectives of its climate-related strategy (depending on the nature, size and complexity of the listed company's business).

The guidance also clarifies the limited circumstances in which the FCA expect a listed company to explain, rather than make disclosures. The FCA ordinarily expects an in-scope listed company to be able to make climate-related financial disclosures consistent with the TCFD recommendations, except where it faces transitional challenges in obtaining relevant data or embedding relevant modelling or analytical capabilities.

The FCA has added additional guidance on transition plans which provides that where a company is disclosing details of transition plans as part of its strategy disclosures under the TCFD’s recommendations, if the company is headquartered in, or operates in, a country that has made a commitment to a net zero economy (such as the UK), then it is encouraged to assess the extent to which it has considered that commitment in developing and disclosing its transition plan. Where it has not done so, it is encouraged to explain why. (This will also apply to premium listed companies for financial years beginning on or after 1 January 2022.)

The rules do not refer to the Sustainability Accounting Standards Board (SASB) Standards, but in the same way as the FRC is encouraging UK public interest entities to report against the TCFD recommendations using the SSAB metrics, the FCA encourage relevant listed companies to consider the SASB metrics for their sector when making their disclosures against the TCFD's recommended disclosures.

Is third party assurance needed?

The FCA has decided not to require third party assurance now but will continue to keep the position under review and this is more likely once there is an international reporting standard in place.

Technical Note/PMB 36

When the FCA published its rules for premium listed issuers, it also published a Technical Note: Disclosures in relation to ESG matters, including climate change that provides guidance to all listed issuers on existing disclosure obligations.

The FCA has updated this Technical Note to reflect the rules and associated guidance for standard listed issuers.

The FCA has also published Primary Market Bulletin No 36 which sets out the FCA’s disclosure expectations and supervisory strategy for the TCFD aligned disclosure requirements for listed companies. (See FCA guidance on TCFD disclosure requirements for listed companies.)