Audit watchdog: UK companies must report climate disclosures
FRC to push companies to speed up on the race to net zero
Companies are being urged to improve their reporting on climate change to meet the increased expectations of investors.
On November 10, the UK’s Financial Reporting Council (FRC) called on public interest entities to report against the recommended disclosures of the Task Force on Climate-related Financial Disclosures (TCFD).
Climate change must be integrated into decision-making now if it is to be tackled in an orderly way, the UK’s audit watchdog concluded, following a 2020 thematic review.
It comes after the UK Treasury said on November 9 it will introduce stricter rules on climate risk disclosure for large companies and investors, in line with the TCFD guidelines, as the Government seeks to meet its pledge to reach ‘net zero’ by 2050.
The FRC’s Sir Jonathan Thompson chief executive said now is the time to “raise the bar” on climate reporting.
“Users of corporate reports expect more from companies, auditors, regulators and standard setters in terms of climate change reporting,” he said.
In contrast to the UK Treasury, the FRC has also said companies should report against the sector-based reporting metrics of the Sustainability Accounting Standards Board (SASB) – a US-based industry association.
The FRC believes reporting on TCFD and SASB disclosures is important while waiting for global standards on non-financial reporting to be developed, which the watchdog supports.
Its 2020 review of climate-related considerations by boards, companies, auditors, professional bodies and investors, found some bright spots of better practice in both corporate reporting and auditing. However, it said much more needs to be done.
Only a quarter of companies in the FRC’s sample had made any reference to climate change in their financial statements, although almost all had addressed climate change in their narrative reporting.
An increasing number of companies report, or intend to report, against the TCFD framework. However, a greater degree of granularity regarding milestones, targets and metrics would lead to a more meaningful disclosures, said the FRC’s review.
One of its findings is that investors, which are also grappling with a changing regulatory environment, are supportive of the TCFD framework and also expect to see disclosures on the financial implications of climate change.
Where companies had made climate change commitments in their accounts, it was not clear how the audit team had assessed how these were consistent with the forecasts used to prepare the financial statements.
In several instances where the audited entity had reported that they were complying with the TCFD recommendations, the audit team had not evidenced an assessment of compliance.
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Minerva is an accredited supporter of:Last Updated: 13 November 2020