Climate-related Financial Disclosures
The UK Government’s Climate-related Financial Disclosure (CFD) regulations have introduced mandatory climate change reporting requirements for hundreds of large UK private companies and limited liability partnerships (LLPs). Is your business prepared?
CFD extends the requirement to provide narrative disclosure on climate change-related risks and opportunities to non-listed businesses in the UK. These regulations require companies to report on their governance, strategy, and risk management responses to climate change, as well as the metrics and targets they use to monitor climate-related impacts on the business.
Specifically designed to be “TCFD-aligned”, but with eight recommended disclosures (a – h) compared to TCFD’s eleven, these regulations will mean some UK-listed companies are subject to both CFD and TCFD requirements. It is, therefore, vital for companies to understand where the frameworks overlap and where they differ.
Key Implications:
- UK Public Interest Entities (PIEs) and Alternative Investment Market (AIM) listed companies with over 500 employees, as well as UK private companies and LLPs with over £500m in turnover and 500 employees (including subsidiaries), will have to apply the new rules for financial periods beginning on or after 6 April 2022.
- In scope companies are expected to report at the group or company level where not included in consolidated group reporting, and UK groups should report on their global operations where relevant.
- Companies should include their disclosures in the Non-financial and Sustainability Information Statement, while LLPs should include theirs in the Energy and Carbon Report. All relevant information must be included in the Annual Report.
- Where a company is subject to both CFD and TCFD requirements, disclosure consistent with all of the TCFD recommendations and recommended disclosures in its annual report is likely to meet the requirements of CFD regulations.
- Responses to disclosures a) through to d) are mandatory. The guidance allows companies to omit some or all disclosures e) to h) where these are not considered necessary to understand the business. However, a clear and reasoned explanation from the company directors as to why these omissions are appropriate is expected.
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The UK climate-related financial disclosure regulations
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