New climate-related financial information for private companies and LLPs | Morrison & Foerster LLP


Companies and Limited Liability Companies (LLP) “having the greatest economic and environmental impact” are now subject to a legal obligation to assess their climate risks and disclose climate-related financial information due to new regulations that came into effect on April 6, 2022. This makes following the Financial Conduct Authority (CIF) extending climate-related financial disclosure obligations to, among others, listed companies and certain asset managers and owners in December 2021, as noted in our previous Client Alert.

Under the Companies (Strategic Report) (Climate-Related Financial Disclosure) Regulations 2022 and the Limited Liability Companies (Climate-Related Financial Disclosure) Regulations 2022 (the “Regulations“), certain companies and LLPs – including large private companies – are now required to disclose climate-related financial information for accounting periods beginning on or after April 6, 2022.

Companies falling within the scope of the FCA’s listing rules will now be subject to two frameworks, and UK government guidance has confirmed that disclosures required under the listing rules should also comply with the new regulation.

To which companies does the Regulation apply?

The new climate-related financial disclosure requirements now apply to the following entities with accounting periods beginning on or after April 6, 2022:

  • UK registered companies which includes:
    • Listed companies with (i) more than 500 employees and (ii) dealing in securities on a UK Regulated Market or AIM;
    • Limited liability companies with (i) more than 500 employees and (ii) a turnover of more than £500 million; and
    • Relevant public interest entities such as insurance companies or banks with more than 500 employees.

The companies within the scope are required to include their information in the declaration of non-financial and sustainable development information in their strategic report. For group companies, the information must be disclosed in the parent company’s consolidated group report. When the parent company does not produce consolidated financial statements, the scope criteria are applied to the group’s turnover and cumulative workforce. The parent company is then required to provide information about it, including how climate-related risks and opportunities may affect the value of its investments in its subsidiaries.

  • Limited Liability Companies which includes:
    • Commercial or banking limited liability companies with more than 500 employees; and
    • LLPs that (i) are not listed or bank LLPs, (ii) have more than 500 employees and (iii) have a turnover of more than £500 million.

Limited liability companies in scope must include their information in the energy and carbon report of their directors’ report or, if applicable, their strategic report.

New climate-related financial disclosure obligations

Scope companies and LLPs are required to provide climate-related financial information based on a list of common requirements:

a) A description of the entity’s governance arrangements for assessing and managing climate-related risks and opportunities (CRO);

b) A description of how the entity identifies, assesses and manages ORCs;

c) A description of how the processes for identifying, assessing and managing climate-related risks are integrated into the entity’s overall risk management process;

d) A description of: (i) major CROs arising in connection with the company’s operations; and (ii) the time periods against which such risks and opportunities are assessed;

e) A description of the actual and potential impacts of the main CROs on the entity’s business model and strategy;

f) An analysis of the resilience of the entity’s business model and strategy, taking into account different climate-related scenarios;

g) A description of the objectives used by the entity to manage climate-related risks and realize climate-related opportunities and performance against those objectives; and

h) Key Performance Indicators (KPIs) used to assess progress against targets used to manage climate-related risks and realize climate-related opportunities, and a description of the calculations on which these KPIs are based.

Disclosures should be made to a level of detail that allows the reader to understand the effect of CROs on the business without the need to refer to other sources of information, and should allow the reader to understand how the disclosures relates to the other information presented in the annual report. Information likely to influence investors’ decisions should not be omitted.

The directors of the company have the discretion to omit any or all of the requirements listed in items (e) to (h) above where they are considered unnecessary to understanding the business of the company, but should provide an explanation clear reason why they think it is appropriate to omit the information.

Overlap with existing disclosure requirements

Under the FCA’s listing rules, the mandatory task force framework on climate-related financial disclosures (TCFD) the aligned information applies to publicly traded companies and certain asset managers and owners. The disclosure requirements imposed by the Regulations do not directly reflect or reference the recommendations of the TCFD, but rather are ‘based on‘ the recommendations of the TCFD and have been adapted for inclusion in UK legislation.

Some listed companies will find themselves within the scope of two distinct sets of obligations – under the Regulations and under the Listing Rules. Government guidelines have clarified that disclosures made in accordance with the listing rules will be ‘probably… meet the requirements of these regulations.

Non-compliance and enforcement

Where a scoped entity breaches the Regulations, the Financial Reporting Council has the power to seek a declaration of non-compliance from the court. The court may then order the preparation of revised accounts (including the strategic report), as well as other sanctions at the discretion of the court. Failure by firms to comply with the scope of the Regulations and Listing Rules may also result in FCA enforcement action.


Now that some companies and LLPs are among the ever-growing group of entities required to disclose climate-related financial information, their decision makers should consider how best to implement these disclosure obligations into their governance practices. Government guidance, issued to accompany the Regulations, provides detailed guidance on the types of information that reporting entities must include in each element of the reporting requirements. Although the Regulations do not directly parallel the recommendations of the TCFD, TCFD publications also offer advice and examples of best practice.

In line with the UK government‘s sustainable investing roadmap, small businesses have been spared mandatory disclosures (for now), with the government indicating a preference for ‘the development of best practices, to support [them] disclose if they wish.’ And for now, small businesses are advised to observe relevant entities to take note of what climate-related compliance may look like.

What to watch

At the time of writing:

  • The FCA is expected to publish its consultation paper on labeling sustainable investments in the second quarter of 2022 and its feedback statement on environmental, social and governance aspects (ESG) integration into UK capital markets focusing on the sustainable debt market and the role of ESG data and rating providers before the end of the second half of 2022.
  • On May 12, 2022, the UK government launched a call for input to update its Green Finance Strategy, first published in July 2019. The strategy sets out the role of the financial sector in achieving global climate and environmental goals and national. The deadline for responses is June 22, 2022.

James Quirke, London Trainee Solicitor, contributed to the writing of this alert.

[View source.]


Comments are closed.