New climate-related disclosure requirements for large UK companies

Under new legislation which comes into force on 6 April 2022, UK companies with a ‘high turnover’ will be subject to new climate-related disclosure requirements for financial years starting on or after 6 April 2022.

“High turnover” is defined in the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2021 (the Regulations), as it will amend the Companies Act 2006, as being companies with (i) an annual turnover of greater than £500m (on a consolidated basis) and (ii) more than 500 employees.

The Regulations require such ‘high turnover’ companies to include a non-financial and sustainability information statement in their strategic reports which accompany their annual accounts. The statement must contain the following climate-related financial disclosures:

• a description of the company’s governance arrangements in relation to assessing and managing climate-related risks and opportunities;
• a description of how the company 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 company’s overall risk management process;
• a description of:
  • the principal climate-related risks and opportunities arising in connection with the company’s operations, and
  • 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 company’s business model and strategy;
• an analysis of the resilience of the company’s business model and strategy, taking into consideration different climate-related scenarios;
• a description of the targets used by the company to manage climate-related risks and to realise climate-related opportunities and of performance against those targets; and
• a description of the key performance indicators used to assess progress against targets used to manage climate-related risks and realise climate-related opportunities and of the calculations on which those key performance indicators are based.

These new reporting requirements under the Regulations are aligned with the recommendations of the Taskforce on Climate-related Financial Disclosures (the TCFD), published in its report of 2017. The TCFD was established by the Financial Stability Board in 2015 in order to improve and increase the reporting of climate related financial information.

Increased disclosure on these matters is intended to, in turn, increase the proportion of companies taking actions against climate-related risks and opportunities affecting their business, which is all part of the UK’s much wider transition towards net zero.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at January 2022. Specific advice should be sought for specific cases. For more information see our terms & conditions.