The FCA proposes climate-related disclosures for equity prospectuses

Background

The UK Financial Conduct Authority (FCA) has taken an important step towards making the UK one of first major capital markets to require minimum specific climate-related disclosures in public equity offering documents.^[1]

As part of its prospectus reform Consultation Paper 24/12 (see our overview here), the FCA has included proposals for the disclosure of specific climate-related information in a prospectus where an issuer is seeking to list its securities on a regulated market in the UK.

1. Disclosure of climate related risks and opportunities and supporting information

The FCA has proposed that if an issuer has identified: (i) climate-related risks as material risk factors to disclose in the prospectus; or (ii) climate-related opportunities that are material to its prospects, the issuer must disclose sufficient supporting climate-related information in the prospectus to allow investors to make an informed assessment of that risk or opportunity.

Although the draft rules do not detail what supporting information must be disclosed, they provide guidance that the Task Force on Climate-Related Financial Disclosures (TCFD) and S2 of International Sustainability Standards Board (ISSB)^[2] may be of assistance in identifying risks and opportunities, and the relevant supporting information.

The FCA does not expect that issuers will need to disclose all information under these frameworks in all circumstances, emphasising that it remains the issuers' responsibility to determine the information to disclose in line with the necessary information test.^[3]

The FCA's expectation under these proposals is that these supporting disclosures align with the high-level categories common to the TCFD and ISSB standards and therefore include:

• A description of the issuer’s governance arrangements for assessing and managing climate-related risks and opportunities.
• A description of the actual and potential impacts of climate-related risks and opportunities on the issuer’s businesses, strategy, and financial planning.
• A description of how the issuer identifies, assesses, and manages climate-related risks.
• If material, a description of the metrics and targets used to assess and manage relevant climate-related risks and opportunities.

2. Disclosure of transition plans

The draft rules also propose that where an issuer has published a financially material climate transition plan, it should provide in the prospectus a summary of key information about this transition plan and where it may be located and inspected. They provide guidance that the UK Transition Plan Taskforce (TPT) Disclosure Framework may be of assistance in identifying the relevant information to be disclosed in the prospectus.^[4]

3. Sustainability-related information beyond climate

At this time, the FCA is not proposing to include any minimum content requirements on sustainability-related information beyond climate. However, the FCA considers that the ISSB standards are a useful source to which issuers may wish to refer when identifying the types of sustainability-related risks and opportunities and appropriate related disclosures for investors, and propose covering this, including referencing ISSB standards as a source of guidance, in its revised Technical Note^[5].

4. Protected forward-looking information

Certain climate-related prospectus disclosures will also benefit from the FCA’s proposals for protected forward-looking statements (PFLS). Under the proposed PFLS regime, issuers would only be liable for losses related to these statements if they knew, or were reckless as to whether, the statement was false or misleading, or if they knowingly omitted a material fact. Forward-looking disclosures related to strategy, transition plans, and metrics and targets should qualify as PFLS, while governance and risk management disclosures, which are historic in nature, would normally not be protected as PFLS.

Our take and further guidance

Following the consultation process, the FCA aims to finalise its new prospectus rules by the end of the first half of 2025. If the minimum climate disclosure rules are adopted as substantially proposed, then:

• Issuers planning a UK IPO for 2025 will need to consider these climate-related disclosure requirements as part of their IPO readiness, planning and execution processes.
• As the disclosures are triggered by a materiality analysis, issuers will first need to assess, and have robust processes in place for assessing, the extent to which climate-related risks or opportunities are material to their business. Large UK-incorporated companies are already required to make prescribed climate-related disclosures in their annual reports, so they already have processes in place.
• Prospective IPO candidates that are not UK-incorporated will also need to consider that, as a UK listed company post IPO, they will need to report annually in line with the TCFD Recommendations on a "comply or explain" basis.
• In addition, the UK Government is currently undertaking an endorsement and implementation process for ISSB, with the expectation that UK listed companies would be required to report annually against UK-endorsed ISSB standards in 2027 (on accountings periods beginning on or after 1 January 2026), replacing the TCFD Recommendations.
• Therefore, as a practical matter, non-UK incorporated issuers will need to comply with the TCFD Recommendations, and later UK ISSB standards, soon after listing and therefore will need to have sufficiently advanced processes in place to enable such compliance as part of their IPO execution process.

For further information on climate-related reports for UK listed companies, see our snapshot here. For guidance on how to approach the TCFD Recommendations, the UK Financial Reporting Council (FRC) published a detailed guide in 2021 in advance of the FCA's mandatory "comply or explain" TCFD disclosure requirements instituted for UK listed companies. In 2022 and 2023, the FRC also published climate thematic reviews (here and here) of how well UK-listed companies were complying with the rules. The UK Government published an update on UK endorsement and implementation of the ISSB Standards in May 2024.

In June 2024, we also hosted a client webinar on emerging themes in climate change disclosure and diligence for securities offerings, which is available here.