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 Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Previous Article
ESRB Announces Updates on Macro-Prudential Measures in March 2021Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.