The Financial Reporting Council (‘FRC’) has recently published a thematic review, assessing the quality and maturity of climate-related metrics and targets disclosures. Over the course of a year, the Financial Reporting Council’s Corporate Reporting Review (‘CRR’) team undertake a number of thematic reviews of certain aspects of companies’ corporate reports. These reviews focus on areas of corporate reporting in which the FRC believe there is scope for improvement and particular shareholder interest.
The thematic findings are based on a sample of limited-scope reviews of company accounts, together with the results of broader-scope routine monitoring activities. The aim of this monitoring activity is to drive continuous improvement in the quality of corporate reporting and to identify good examples of clear and concise disclosures. The FRC shares these good examples to help others raise the quality of corporate reporting.
The 2022 thematic review, carried out in collaboration with the Financial Conduct Authority (FCA), covered the first year of mandatory Task Force on Climate-Related Financial Disclosures (‘TCFD’) reporting by premium listed companies. It highlighted that, whilst UK premium listed companies had made a significant effort, there was room for improvement in their TCFD disclosures, especially in relation to metrics and targets and the disclosure of the effect of climate change on their financial statements.
Climate-related metrics and targets, including ‘net zero’ plans, are seen as increasingly important by investors and other stakeholders, who expect comparable, clear information explaining company targets, the metrics to track climate risks and the plan for transitioning to a lower carbon economy.
The availability and quality of climate-related data is still evolving, and all companies are on a journey, both in assessing climate impacts on their business, and in determining how best to effectively communicate their plans to adapt and transition to a lower carbon economy. We expect this journey to continue apace as companies increase their ability to report against the TCFD framework, commence reporting under the UK Climate Related Financial Disclosures requirements, and prepare for the FCA and UK government's plans regarding the recently published IFRS Sustainability Disclosure Standards, also known as ISSB standards, issued by the International Sustainability Standards Board (ISSB), IFRS S1 and IFRS S2. Companies with significant EU operations will also need to consider the requirements of the EU Corporate Sustainability Reporting Directive.
To read the review findings in more detail click on this link.