Path to mandatory climate-related disclosures set out in new report

The roadmap sets out measures (14 page / 420KB PDF) that should be taken over the next five years to produce “comprehensive and high-quality information” on how climate-related risks and opportunities are being managed.

It presents a coordinated approach across seven types of organisation to ensure the same information on climate-related risks and opportunities is available throughout the investment chain. The organisations captured include listed commercial companies; UK-registered companies; banks and building societies; insurance companies; asset managers; fund managers; life insurers and Financial Conduct Authority (FCA) regulated pension schemes; and occupational pension schemes.

The roadmap outlines what proportion of entities within each category would be captured by supervisory expectations or regulation or legislation over the next five years.

All listed companies are expected to be required to make climate-related disclosures by 2022. All banks will be caught by mandatory disclosure rules next year, either through legislative requirements or supervisory expectations, with the proportion of banks caught by legislation potentially rising from 57% in 2021 to 94% in 2022.

Similarly, the proportion of insurance companies where disclosure requirements are set out in law is expected to rise substantially in 2022.

Consultation on disclosures by asset managers, life insurers and FCA-regulated pension schemes is expected next year before mandatory disclosures begin in these sectors the following year. Reviews of existing measures in the occupational pension scheme, banking and insurance sectors and for UK-registered companies are also envisaged.

The TCFD said it anticipated that for some categories of organisation, disclosure obligations would be introduced with some flexibility in compliance to take account of known data limitations or other challenges. This could allow organisations to provide an explanation for not making full disclosures.

The publication of the roadmap follows consultations by the FCA and the Department of Work and Pensions (DWP), which showed that a minority of listed companies and large occupational pension schemes were already making disclosures or had plans to do so.

Investment funds expert Oliver Crowley of Pinsent Masons, the law firm behind Out-Law, said: “While it has already been open to companies to make TCFD disclosures, take up has been fairly limited as shown by the recent consultations. The proposed mandatory requirements will over time apply to a significant proportion of UK corporates, which may fall in one of more of the seven categories set out in the roadmap.”

Pensions expert Carolyn Saunders of Pinsent Masons said pension scheme trustees would welcome the roadmap.

“The lack of consistent, accurate climate change information across the market can make it hard for trustees to properly assess climate risks and opportunities – and all at a time when trustees’ actions in this area are increasingly under the spotlight. However, the pincer movement created by this roadmap and the climate change provisions in the Pension Schemes Bill, as brought to life by the recent DWP consultation, should drive the market towards delivering the data that trustees need,” Saunders said.

Crowley said the roadmap would expand disclosure reporting to a wider range of financial institutions than those currently caught by regulatory guidance, which include Prudential Regulation Authority-related banks, building societies and insurance companies.

“These will ultimately include MiFID [Markets in Financial Instruments Directive] investment firms providing portfolio management services and a broad range of fund managers,” Crowley said.

“While overlap is likely, a number of these institutions will fall within the scope of the corresponding EU framework if offering their products into the EU. As noted for pension scheme trustees, investors will welcome the convergence of reporting, enabling them to make meaningful comparisons and to allocate and re-allocate capital accordingly,” Crowley said.