Companies’ disclosures remain inconsistent with TCFD standards
December 15th, 2022
Companies are failing to comply with the standards of the Taskforce on Climate-related Financial Disclosures (TCFD), the UK’s regulatory watchdog has found.
The latest review by the Financial Conduct Authority (FCA) revealed several reporting gaps and areas for improvement.
The organisation’s detailed analysis found 90% of companies had made disclosures consistent with the TCFD framework, but some were very limited in content.
As a result, the FCA is now reminding companies of the standards expected by the TCFD-aligned disclosures.
The FCA stated: “We have been encouraged by developments in climate-related financial disclosures since our intervention.”
“However, our first review of TCFD-aligned disclosures by premium listed commercial companies, and the Financial Reporting Council’s complementary analysis, highlighted some common reporting gaps.”
In 2022, the UK became the first G20 country to enshrine mandatory TCFD-aligned reporting of its largest companies and financial institutions.
These rules came into effect from April 2022, with 1300 companies and institutions immediately falling under its remit.
Standard listed companies were required to adhere, along with private companies with over 500 employees and £500m in turnover.
The framework aims to encourage structured disclosures and greater transparency to support market integrity and lead to better informed decisions.
TCFD-aligned reporting has become a regulatory framework in the European Union, Singapore, Canada, Japan, and South Africa.
New Zealand is also mandating climate risk disclosures in line with the TCFD by 2023.
With the FCA finding many companies have yet to fully comply, the regulator is urging these entities to improve internal processes, deepen their familiarity with the TCFD’s recommendations, and engage with investors to understand their disclosure expectations.
Specifically, many companies within the energy, transportation, material and buildings, and agriculture, food, and forest products sector are failing to align with TCFD-aligned disclosures.
These companies have not identified climate change to be an applicable or material risk to their business.
Where climate change has been identified as a principal risk, companies have not made disclosures consistent with the TCFD’s Supplemental Guidance for Non-Financial Groups.
To ensure more companies are meeting the expectations of the TCFD, the FCA will use multi-firm or thematic reviews next year.
The regulator also intends to consult on strengthening its disclosure expectations for transition plans by drawing on the outputs of the Transition Plan Taskforce once it is finalised.
Last Updated: 15 December 2022