Business giants' climate disclosure 'clearly inadequate', lawyers warn
Lawyers have warned that the majority of FTSE 100 and the largest companies on the FTSE 250 are failing to disclose adequate climate-related data as part of annual corporate reporting frameworks, with some potentially breaching UK law.
The new study from environmental law firm ClientEarth, reviewed the annual reports of every FTSE 100 firm and the largest 150 companies on the FTSE 250 to assess how companies were disclosing climate-related risk and data amongst mainstream annual filings.
The study found that more than 90% of companies made no reference to climate change and related factors in their financial accounts and audit reports. Only 60% of companies actually refer to climate-related risk as part of the ‘principal risks and uncertainties’ section of their annual report and fewer than 25% reference the impact that the climate crisis will have on future and current business models.
Companies are broadly disclosing emissions, with just 5% failing to disclose Scope 1 and 2 emissions. Around half of the companies analysed make reference to the Paris Agreement or net-zero targets, but few are able to go into details. ClientEarth raised concern that this could be construed as corporate greenwash.
“Based on our review and analysis, we have found that while climate change-related reporting by large listed companies in the UK is clearly improving, many companies still fail to provide any meaningful information about the climate change-related risks and impacts that are facing their business. Even among companies that disclose some climate change-related information, highly generalised and boilerplate information is common,” the report states.
“While there are undoubtedly examples of good reporting by individual companies, overall disclosure practices fall a long way short of the granular climate change-related narrative and financial information which investors say that they need and expect. The limited extent to which auditors are drawing attention to these matters in their audit reports also indicates that many are failing to properly test management on their accounting assumptions and disclosures.”
ClientEarth is calling on UK authorities to ramp up frameworks and requirements for corporate reporting, with plenty of change on the horizon.
Last year, the Financial Reporting Council (FRC) launched 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.
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 Financial Conduct Authority (FCA) outlined stricter rules on climate risk reporting in line with the recommendations of the global Taskforce on Climate-related Financial Disclosures (TCFD).
From 2023, all publicly listed UK companies with a premium listing will be required to “comply or explain” with the TCFD’s requirements. Rules will then be tightened and extended further in 2025, subject to consultation.
Vast swathes of the UK’s finance industry will be subject to these new requirements, including major pension schemes, life insurance providers and asset managers, Sunak said.
The UK Government first confirmed its intentions to mandate TCFD-aligned through its Green Finance Strategy, published in 2019.