In November last year we reported on the government’s written response to the consultation on new mandatory climate related financial reporting for UK businesses, in which the government confirmed the proposals would be implemented through secondary legislation amending the Companies Act 2006 and the Limited Liability Partnerships Act 2000.
In January 2022, The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 and The Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022 (the “Regulations”) were made law.
The Regulations will enter into force on 6 April 2022 and will apply to financial years commencing on or after that date. Within the scope of the Regulations are publicly traded and banking LLPs with more than 500 employees and “large LLPs”; as well as publicly traded companies, banking and insurance companies, companies performing insurance activities, companies listed on the Alternative Investments Market (AIM), and “high-turnover” companies.
In this context, “large LLPs” means those with more than 500 employees and an annual turnover of more than £500m (which in the case of parent LLPs includes the aggregate turnover and number of employees headed by the LLP); and “high turnover companies” means more than £500m turnover in the relevant financial year, which in the case of parent companies covers the whole group’s aggregate turnover. Excluded from the scope of the Regulations are companies that qualify as small or medium sized pursuant to the Companies Act 2006, and those that have less than 500 employees.
Once in force, the Regulations will require companies and LLPs in scope to include in their strategic reports (or their energy and carbon report as the case might be) the following climate-related financial disclosures (no changes to the draft regulations made):
- a description of their governance arrangements in relation to assessing and managing climate-related risks and opportunities;
- a description of how they identify, assess, and manage climate-related risks and opportunities.
- a description of how processes for identifying, assessing, and managing climate-related risks are integrated into their overall risk management process;
- a description of the principal climate-related risks and opportunities arising in connection with their operations, and the time periods by reference to which those risks and opportunities are assessed;
- a description of the actual and potential impacts of the principal climate-related risks and opportunities on their business model and strategy;
- an analysis of the resilience of their business model and strategy, taking into consideration different climate-related scenarios;
- a description of the targets used to manage climate-related risks and to realise climate-related opportunities and of performance against those targets; and
- a description of the key performance indicators used to assess progress against targets used to manage climate-related risks and realise climate-related opportunities and of the calculations on which those key performance indicators are based.
The Regulations allow company directors and members of LLPs to omit some climate-related financial disclosures in whole or in part if they reasonably believe that, having regard to the nature of their business, the relevant disclosure is not necessary for an understanding of their business. They must however provide a clear and reasoned explanation of their reasonable belief why this is not necessary.
Official guidance on the Regulations is awaited.
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