Financial Reporting Council launches ‘major’ review of corporate climate reporting

The Financial Reporting Council (FRC) is set to launch a major review into the quality of how companies and auditors are reporting on climate change impacts and risks, including the pace at which the Task Force on Climate-related Financial Disclosures (TCFD) framework has been adopted.

Financial Reporting Council launches ‘major’ review of corporate climate reporting

The FRC will consider how investors are addressing climate change under a new Stewardship Code

The FRC, the UK’s auditor regulator, has announced the major review, which will explore the extent to which UK companies and auditors are meeting reporting requirements by responding to the impacts of climate change. The review will consider whether the quality of information disclosed via reports can be improved to enable informed decision making by investors and stakeholders.

The FRC will also focus on how business advisors and auditors can encourage better practice by assessing the resources available within audit firms to support audit teams in evaluating the impact of climate change.

“Not only do Boards of UK companies have a responsibility to report their impact on the environment and the risks of climate change to their business, but investors expect them to operate sustainably,” the FRC’s chief executive Sir Jon Thompson said.

“Auditors have a responsibility to properly challenge management to assess and report the impact of climate change on their business. The FRC has high standards for company disclosure, including regarding climate change. Company reports and accounts are essential to understanding how the corporate world is responding to the challenge of climate change.”

The review will consider the quality of current corporate reports and accounts in regard to compliance with disclosing climate-related data and impacts. It will also assess whether auditors are appropriately reflecting climate risks in company reports and accounts.

The FRC has also announced that as part of the review, it will examine the quality of disclosures issued under the new UK Corporate Governance Code, published in 2018, which calls on companies to denote how they are establishing culture and purpose as part of a business strategy.

Additionally, the FRC will consider how investors are addressing climate change under a new Stewardship Code, which will be issued from the beginning of 2021.

TCFD alignment

The FRC is also set to evaluate whether companies are reporting in line with the TCFD’s recommendations, which has now been supported by more than 1,000 organisations globally.

The TCFD recommendations urge organisations to achieve board-level governance of climate risk and opportunity assessments; develop strategies aligned with global climate targets; disclose risk management processes and metrics and report annually on greenhouse gas (GHG) emissions.

The strategy piece notably includes a recommendation for firms to conduct scenario analysis, mapping how different global temperature increases, including the Paris Agreement’s 2C trajectory, would impact their financial standing.

The UK Government, meanwhile, has said it will mandate TCFD-aligned disclosures for certain large organisations within three years, under its Green Finance StrategyCalls are now growing for more Government clarity ahead of the TCFD mandate to help businesses determine how to meet its scenario analysis requirements.

Last October, the UK’s Financial Conduct Authority (FCA) unveiled a string of new measures designed to prevent issuers from ‘greenwashing’, covering challenges such as climate risk reporting and the accessibility of ‘green’ products such as mortgages.

Matt Mace

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