On 19 January 2022 the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 (the “Regulations”) were published in the UK. As of 6 April 2022, these Regulations are now in force. Companies that are subject to the Regulations will need to comply with the new reporting requirements for accounting periods ending on or after 6 April 2022.
What do the Regulations do?
The Regulations amend the Companies Act 2006 and expand the type of companies that are required to provide information in accordance with the recommendations of the Task Force on Climate-Related Financial Disclosures (“TCFD”) as part of their strategic reports. The Regulations require mandatory disclosure of material information in the four TCFD categories: Governance, Strategy, Risk Management, and Metrics / Targets.
It is mandatory for companies that are subject to the Regulations to disclose climate and sustainability-related information outlined in the Regulations in the non-financial information section of their strategic reports. The information required to be provided depends on the type of company, for example, AIM companies are subject to less extensive requirements. These reports will be publicly available, accessible free of charge and filed at Companies House.
Similar requirements will also apply to certain limited liability partnerships (LLPs) in the UK. The LLP Regulations amend The Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 and require certain LLPs to incorporate TCFD-aligned climate disclosures in their annual reports.
In-scope companies should familiarise themselves with the new reporting requirements and be aware of the potential for overlap with other reporting requirements. The BEIS Guidance offers additional detail on the expected disclosures. In general, companies and LLPs will be required to disclose the following information:
- a description of the governance arrangements of the company or LLP in relation to the assessment and management of climate-related risks and opportunities;
- an explanation of how the company or LLP identifies, assesses and manages climate-related risks and opportunities;
- details of the processes the company or LLP uses to identify, assess and manage climate-related risks and how these processes are integrated into the overall risk management process of the company or LLP;
- identification of the principal climate-related risks and opportunities arising in connection with the operations of the company or LLP;
- a description of the actual and potential impacts of the principal climate-related risks and opportunities on the business model and strategy of the company or LLP;
- an analysis of the resilience of the business model and strategy of the company or LLP, taking into consideration different climate-related scenarios;
- a description of the targets used by the company or LLP to manage climate-related risks and to realise climate-related opportunities and of performance against those targets; and
- the key performance indicators used to assess progress against targets and a description of the calculations on which those key performance indicators are based.
Which companies do the Regulations apply to?
The Regulations apply to UK companies that are:
- AIM / traded companies;
- Banking companies;
- Authorised insurance companies;
- Companies with a high-turnover;
Provided that each such company has more than 500 employees (or together with its subsidiaries has more than 500 employees).
Are there any exemptions to the Regulations?
A company will not be subject to the Regulations if it is a subsidiary and annual climate-related disclosure is included in its parent company’s strategic report for the group. To be exempt, the parent must be a UK company (or LLP) and the strategic report must be prepared for a financial year that ends on or before the subsidiary’s financial year. The report must also include non-financial and sustainability information in respect of the subsidiary.
UK subsidiaries of a non-UK parent:
However, where a U.K. subsidiary has a non-UK parent that reports on a consolidated basis, the exemption does not apply. This means a non-UK parent may be exempt but their UK subsidiaries may be subject to the Regulations.
Non-UK companies with UK subsidiaries should be aware that their UK subsidiaries may fall within the scope of the Regulations and consider whether their strategic reports should be on an individual or consolidated basis with respect to their UK subsidiaries.
If you have any questions about this post, please contact Drew D. Salvest, Natalie A. Stewart, Rebecca Green any of the attorneys in our Banking and Finance Industry Group or the attorney in the firm with whom you in regular contact.
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