Climate-related disclosures mandatory for certain LLPs

On 19 January 2022, The Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022 (Regulations) were published which make climate-related financial disclosures mandatory for certain limited liability partnerships (LLPs).

The Regulations come into force on 6 April 2022 and apply to financial years beginning on or after that date.

On 22 February 2022, the government published non-binding Q&A guidance on how to apply the new requirements.

The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 were also published on the same date, which make climate-related financial disclosures mandatory for certain publicly quoted companies, banks, insurance companies and large private companies. See our insight on these regulations.

Context

The Regulations build on:

• the Government's expectation (in its 2019 Green Finance Strategy) that all listed companies and large asset owners should disclose in line with the Task Force on Climate-related Financial Disclosure (TCFD) recommendations by 2022. This has been reiterated in its recent Greening Finance: A Roadmap to Sustainable Investing;
• the UK's intention to become the first G20 country to make climate-related financial disclosures mandatory;
• new rules requiring premium listed companies to make climate -related disclosures (see Hot news: More climate-related disclosures for listed companies); and
• new rules requiring standard listed issuers, asset managers, life insurers and FCA-regulated pension providers to make climate-related disclosures (see Climate-related disclosures extended to standard listed issuers and FCA final rules on climate-related disclosures by asset managers.).

Which LLPs are in scope?

The Regulations apply to:

• a traded LLP or banking LLP which has more than 500 employees; and

• an LLP that has more than 500 employees and a turnover of more than £500m.

A traded LLP is an LLP whose transferable securities are admitted to trading on a UK regulated market (which includes the Main Market but not AIM).

A banking LLP is an LLP which has permission under Part 4 of the Financial Services and Markets Act 2000 to accept deposits (but does not include one which has permission to accept deposits only for the purpose of carrying on another regulated activity in accordance with that permission).

There are rules for calculating the number of employees each year.

What about parent LLPs?

A traded LLP or banking LLP which is a parent LLP will be in scope if, in the relevant financial year, the group headed by the LLP has an aggregate number of employees of more than 500.

Other parent LLPs will be in scope if, in the relevant financial year, the group headed by the parent LLP has an aggregate number of employees of more than 500 and an aggregate turnover of more than £500m.

The disclosures are to be made at a group level on a consolidated basis or at the LLP level if the LLP is not included within the reporting of a consolidated group.

What disclosures are required?

LLPs in scope must include “climate-related financial disclosures” which are defined as:

• a description of the LLP’s governance arrangements in relation to assessing and managing climate-related risks and opportunities
• a description of how the LLP identifies, assesses, and manages climate-related risks and opportunities
• a description of how processes for identifying, assessing, and managing climate-related risks are integrated into the LLP’s overall risk management process
• a description of: (i) the principal climate-related risks and opportunities arising in connection with the LLP’s operations, and (ii) the time periods by reference to which those risks and opportunities are assessed
• a description of the actual and potential impacts of the principal climate-related risks and opportunities on the LLP’s business model and strategy
• an analysis of the resilience of the LLP’s business model and strategy, taking into consideration different climate-related scenarios
• a description of the targets used by the LLP to manage climate-related risks and to realise climate-related opportunities and of performance against those targets.
• a description of the key performance indicators (KPIs) used to assess progress against targets used to manage climate-related risks and realise climate-related opportunities and of the calculations on which those KPIs are based.

Although the Regulations list these disclosures instead of referring to the TCFD recommendations, they are aligned with the TCFD recommendations.

Is non-disclosure allowed?

LLPs have some flexibility. Where the members of an LLP reasonably believe that, having regard to the nature of the LLP’s business, and the manner in which it is carried on, the whole or a part of any climate-related financial disclosures required under the last four bullets above is not necessary for an understanding of the LLP’s business, the members can omit any or all of those disclosures.

If any or all of those disclosures are omitted, there must be a clear and reasoned explanation of the members’ reasonable belief for the omission.

Where are the disclosures made?

LLPs must report this information in the strategic report or in the energy and carbon report.