Climate change – Final FCA rules on climate change-related financial disclosures

The Financial Conduct Authority (FCA) has today published a Policy Statement (PS20/17) and final rules and guidance in relation to climate-related financial disclosures for UK premium listed companies.

Companies will be required to include a statement in their annual financial report which sets out whether their disclosures are consistent with the Task Force on Climate-related Financial Disclosures (TCFD) June 2017 recommendations, and to explain if they have not done so. The rule will apply for accounting periods beginning on or after 1 January 2021.

The FCA has made only one material change to the rules consulted upon in March 2020 (CP20/03) and has added some additional guidance:

• Timeframe for future compliance – Where companies are explaining why they have not made disclosures consistent with the TCFD recommendations, the final rules state that they must explain any steps they are taking or plan to take in order to be able to make the disclosures in the future, and the timeframe within which they expect to be able to make those disclosures (LR 9.8.6(8)(b)(ii)(C) R).
• Level of detail required – The FCA has added additional guidance on the limited circumstances in which it would expect issuers to explain rather than disclose – where they face "transitional challenges" – and in relation to the level of detail to be included in companies’ disclosures (LR 9.8.6(D) and (E) G). It states it expects all companies will "ordinarily be able" to make TCFD consistent disclosures on governance and risk management.
• References to TCFD materials – The FCA has added guidance to clarify that a company’s determination of consistency with the TCFD’s recommendations should be informed by a detailed assessment of their disclosures which takes into account certain specified TCFD materials (LR 9.8.6(B) and (C) G).

The FCA has also issued a Technical Note clarifying existing environmental, social and governance (ESG) disclosure obligations in its existing rules.

It has also confirmed this it aims to publish further consultation papers on extending the application of TCFD disclosures to a wider scope of listed issuers, and possibly strengthening the compliance basis, in early 2021.