HMT Issues Proposal to Mandate Climate-Related Financial Disclosures
HM Treasury, or HMT, is seeking views on the proposal to mandate climate-related financial disclosures from publicly quoted companies, large private companies, and Limited Liability Partnerships (LLPs). The proposal builds on the expectation set out in the 2019 Green Finance Strategy of the government; the said expectation is that all listed companies and large asset owners should, by 2022, make disclosures in line with the Task Force on Climate-related Financial Disclosure (TCFD) recommendations. This comment period for this proposal ends on May 05, 2021.
HM Treasury proposes to keep the following entities in scope of the disclosure requirements:
- All UK companies that are required to produce a non-financial information statement (that is, the UK companies that have more than 500 employees and have transferable securities admitted to trading on a UK regulated market), banking companies, or insurance companies (Relevant Public Interest Entities)
- UK-registered companies with securities admitted to AIM that have more than 500 employees
- UK-registered companies that are not included in the categories above, that have more than 500 employees, and that have a turnover of more than GBP 500 million
- LLPs that have more than 500 employees and a turnover of more than GBP 500 million
Other key proposals in the consultation include the following:
- Provisions requiring companies and LLPs to report climate-related financial information will be implemented through secondary legislation. The proposed application in the case of companies and LLPs will be via a Statutory Instrument, using the Secretary of State’s powers under the Companies Act 2006.
- Requirement for companies to report climate-related financial information in the non-financial information statement, which forms part of the Strategic Report. LLPs will be required to report climate-related financial information in either the non-financial information statement which forms part of their Strategic Report or the Energy and Carbon Report which forms part of their Annual Report.
- Requirement for companies and LLPs to disclose climate-related financial information in line with the four overarching pillars of the TCFD recommendations on a mandatory basis. These principles are related to governance, strategy, risk management, and metrics and targets.
Subject to a consultation and Parliamentary approval, the Statutory Instrument will be made in 2021 and the rules would come into force on the Common Commencement Date of April 06, 2022. For accounting periods starting on or after April 06, 2022, entities will need to be compliant with these regulations. Non-binding questions and answers will be produced to support companies in the application of these requirements. The proposals have been developed in cooperation wit of the UK to become the first G20 country to make TCFD-aligned disclosures mandatory across the economy, as set out by the Chancellor on November 09, 2020.
Related Links
Comment Due Date: May 05, 2021
Keywords: Europe, UK, Banking, Insurance, Securities, Climate Change Risk, Disclosures, TCFD, ESG, Sustainable Finance, Corporates, HM Treasury
Featured Experts
Michael Denton, PhD, PE
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
James Edwards
James leads the initiative to model the risk implications of climate change for corporates, SMEs, and sovereigns.
Previous Article
ESRB Announces Updates on Macro-Prudential Measures in March 2021Related Articles
EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.
EC Mandates ESAs to Propose Amendments to SFDR Technical Standards
The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.
EBA Examines Supervisory Practices, Issues Deposits Reporting Template
The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),
US Agency Publications Address Basel, Reporting, and CECL Developments
The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances
SEC Extends Comment Period on Climate Risk Disclosures
The U.S. Securities and Exchange Commission (SEC) looks set to intensify focus on crypto-assets and cyber risk and extended the comment period on the proposed rules to enhance and standardize climate-related disclosures for investors.
APRA Reduces Committed Liquidity Facility, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility and issued an update on the operational preparedness for zero and negative market interest rates.
CMF Consults on Basel Rules, Presents Roadmap to Address Climate Risks
The Commission for the Financial Market (CMF) in Chile published capital adequacy ratios (as of February 2022, January 2022, and December 2021) for 17 banks and for the banking system.
PRA Issues Statement on NPEs and Policy on Trading Activity Wind-Down
The Prudential Regulation Authority (PRA) issued a statement on the European Banking Authority (EBA) guidelines on management of non-performing exposures (NPEs) and forborne exposures.
EBA Updates Standards for 2023 Benchmarking of Internal Approaches
The European Banking Authority (EBA) updated the implementing technical standards that specify the data collection for the 2023 supervisory benchmarking exercise in relation to the internal approaches used in market risk, credit risk, and IFRS 9 accounting.
EIOPA Responds to Stakeholder Views on Blockchain in Insurance
The European Insurance and Occupational Pensions Authority (EIOPA) published a feedback statement on the responses received to the consultation on blockchain and smart contracts in insurance.
