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FRC and FCA outline TCFD expectations for firms

Irina Velkova Irina Velkova

Since April 2022, the largest companies in the UK were obliged by law to make disclosures in line with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations. Irina Velkova has identified the key expectations and what regulators consider best practice to guide firms going forward.

The FRC has analysed both the TCFD disclosures and climate-related reporting in the financial statements of 25 premium listed companies, while the FCA published its observations from a quantitative analysis of the disclosures of all 171 premium listed commercial companies. Specifically, they looked at the companies with December 2021 year ends that had published their Annual Financial Reports by end-April 2022 and their compliance with our Listing Rule (Section 2).

Both regulators concluded that there were different levels of disclosures among firms, depending on which of the four TCFD pillars they were reporting against, with the highest being around governance and risk management and the most challenging being around metrics and targets.

Guidance from regulators

The FCA noted that it expects firms to consider the guidance for all sectors, pointing out that it sets out the key matters companies should consider when developing their disclosures.

Firms are expected to clearly signpost where the TCFD disclosures can be found, including specific page references or hyperlinks. When the disclosures are not provided with the annual report, companies should provide reasons for submitting these separately. The regulators’ advice is also for firms to include in their reports information that covers the same time period as previous years for comparison reasons, and that is available no later than the publication of the annual report.

Both the FCA and the FRC considered it helpful that several companies described their process for determining which climate-related information to include in the report, and how this was kept under review over time. A few companies included tables and or symbols to indicate the extent of compliance with each recommended disclosure. Where companies have proposed areas of future improvements of their TCFD disclosures, even when they currently comply with the TCFD requirements, this was viewed very favourably by the regulators.


Governance disclosures were the area with the highest percentage of compliance with TCFD, achieving over 90% of all companies. Some of the good practices that the regulators highlighted in this area include examples where companies provided information on the specific responsibilities of relevant committees or individual management positions, including flow of information between the various governance forums and escalation process. This information was used by the regulators to assess how well firms are integrating climate-related issues into the governance of the company.

The regulators have also highlighted that there is an emphasis on companies to be able to provide sufficient detail on how management assesses and manages climate-related issues, including communicating to the board or other governing body.

Regulators respond positively to companies that disclose how wider management-level staff is held accountable and incentivised for addressing environmental issues. It is important that firms provide clear links to relevant disclosures within their annual report and summarise whether or not the scorecard metrics meet best practice.


With regards to strategy and business plans, regulators considered best practice when companies included considerations related to the risks outlined in the TCFD guidelines. Particularly when disclosing the specific locations of risks, as well as describing the potential and actual physical impacts, related mitigating actions and the impact on financial results.

The regulators emphasised that they expect firms to include quantification of:

  • expected impact of climate-related risks and opportunities on operating costs and revenues
  • capital expenditures and capital allocation
  • acquisitions or divestments
  • access to capital
  • financial implications for their strategy where transition plans are dependent upon technology not yet proven within their exposures.

This should be complemented by a description of adaptation and mitigation activities such as long- and short-term policies and strategies to address climate risks, opportunities, and the climate transition, including whether there have been any significant changes since the prior reporting period.

Firms should ensure that they include information on how climate change is being considered in light of their business plans and any climate related scenarios that can inform the company’s strategy and financial planning. Ideally, this should be supported by undertaking a scenario analysis, obtaining both the key assumptions and the impact on the business strategy.

Risk management

Regulators are expecting firms to describe clearly how they are managing climate related risks and opportunities, including how they are prioritised and any relevant materiality considerations. In the regulators’ opinion, better practice examples included explanation as to how this is embedded and integrated in the process, and the use of organograms is seen as a good tool to illustrate this.

The regulators commented that best practice examples elaborated on the magnitude of the risk and showed the relative importance of climate to other risks, some using a matrix presentation.

Metrics and targets

The fourth pillar of the TCFD disclosures proved most challenging for companies. The regulators therefore provided a significant amount of further helpful guidance as to how firms can improve.

Firstly, regulators have encouraged organisations to consider the TCFD’s all-sector guidance in determining the key metrics to disclose as well as to consider the SASB’s industry-specific metrics for their particular sector. Companies are expected to identify the information that is most relevant to their measurement and monitor when determining which metrics to report. They should ensure this information is linked to the business strategy and targets, acknowledging that this may change over time.

Firms are also expected to clearly explain in their disclosures what methodologies they have used to calculate emissions metrics, including whether it is in accordance with the Greenhouse Gases (GHG) Protocol methodology, the reporting boundaries, highlighting any changes in the basis of reporting.

This is because regulators are of the view that there is significant scope for judgements in determining boundaries and which emissions are included, and good practice requires firms to clearly explain their rationale, in particular when this has led to changes in strategies or policies.

Firms should have undertaken an assessment to determine the materiality of Scope 3 emissions and report emissions where required, clearly identifying which categories are included. This should extend to Scope 3 emissions, which are relevant but not reported, including the reason for the non-disclosure and the expected timeframe to report. Where companies were not able to report their Scope 3 emissions, better disclosures explained why, considered the impact on the companies’ compliance statement, and provided an expected timeline in which they are planning to report.

Where companies have not relied on standard for their sector metrics, they are expected to provide detail in relation to the choice of metrics, including commentary on performance, acquisitions or disposals that have led to significant movements.

Improving standards

Firms will need to do a thorough assessment of their operations to ensure that they are meeting the reporting standards of regulators and meeting best practice. This will require strong oversight from the top down and reliable methods of collecting data to meet this standard. Firms should look to enhance their methods of reporting to obtain the best information.

For more information on the TCFD disclosure reports, get in touch with Irina Velkova.

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