New Listing Rules applicable to premium listed commercial companies.

The FCA is consulting¹ on new Listing Rules for premium listed issuers of shares to improve climate-related disclosures in corporate reporting by requiring disclosures consistent with the recommendations of the Task Force on Climate-Related Disclosures (TCFD). This follows the UK governments statement in its “Green Finance Strategy” policy paper² that UK listed companies should be required to report against the TCFD disclosures by 2022, which view was echoed by the FCA in its discussion paper DP 18/8 and feedback statement FS19/6³. It is also consistent with the review of the Non-Financial Reporting Directive.⁴

The TCFD recommendations

The TCFD was set up in 2015 by the G20’s Financial Stability Board to develop recommendations to help companies and other organisations disclose clear, comparable and consistent information about the risks and opportunities associated with climate change. The TCFD recommendations are intended to help investors, lenders and insurers make more informed decisions. The TCFD’s Final Recommendations⁵, published in 2017, consist of four overarching recommendations based on four core elements of how organisations operate: governance; strategy; risk management; and metrics and targets. The recommendations are supported by 11 recommended disclosures and guidance regarding the implementation of the recommendations⁶. There is supplemental guidance for the financial sector (banks, insurance companies, asset owners and asset managers) and for certain non-financial sectors with greater exposure to climate change (energy, transportation, materials and buildings, and agriculture, food and forest products)⁷ and a technical supplement on the use of scenario analysis⁸.

The FCA proposal

Under the FCA proposal, the Listing Rules would require premium-listed companies, including sovereign-controlled commercial companies but not investment trusts (i.e. funds that are listed on the stock market), to include a statement in their annual report and accounts, setting out:

• whether they have made disclosures consistent with the TCFD’s recommendations and recommended disclosures in their annual financial report
• where they have not made disclosures consistent with some or all of the TCFD’s recommendations and/or recommended disclosures (or where they have included some or all of the disclosures in a document other than their annual financial report, they must include an explanation of why they have done that (“comply or explain”)) and
• where in their annual financial report (or other relevant document) the various disclosures can be found.

The FCA notes that, although some companies have already voluntarily applied the TCFD recommendations, there are still significant gaps and inconsistencies, and that improved disclosure is necessary to support better asset pricing and enable investors to make more informed choices about where to allocate their capital, which, in turn, will support the UK’s transition to net zero greenhouse gas emissions by 2050.

The FCA has indicated that it may, in the future, apply the new rules to standard listed issuers of shares and may require compliance with the disclosures (i.e. mandatory disclosure). It is also considering how best to enhance climate-related disclosures by regulated firms, including asset managers and life insurers.

The consultation closes on 5 June and the FCA aims to publish a Policy Statement along with the finalised rules and Technical Note later in 2020. The new Listing Rules would apply for financial years commencing on or after 1 January 2021. This means that the first disclosures would be made in 2022.

The provision would complement the existing requirement on UK-incorporated companies to include, in their strategic reports, information about the company’s policies with respect to environmental matters, the company's employees and social, community and human rights issues and the effectiveness of those policies, to the extent necessary for an understanding of its development, performance and position and the impact of its activity. It also complements the requirement for companies to report on their environmental performance using environmental key performance indicators.

FRC consultation

The FCA consultation follows the publication by the Financial Reporting Council’s (FRC) Financial Reporting Lab of climate change report in October 2019⁹.

The FRC has announced a further review into climate change reporting¹⁰ which will consider how the quality of information provided by companies and their auditors in assessing climate change can be improved in order to support informed decision-making by investors and other stakeholders. The work includes reviewing a sample of company reports and audits and evaluating the extent to which companies have adopted the Financial Reporting Lab’s recommendation to report in line with the TCFD recommendations.

New Technical Note applicable to premium and standard listed companies

The FCA is also consulting on a new formal FCA guidance note which would apply to all UK listed companies from both an equity and debt perspective and would clarify how existing requirements under the Listing Rules, Prospectus Regulation (PR), Market Abuse Regulation (MAR), Disclosure Guidance and Transparency Rules (DTR) and corporate governance rules may already require disclosures in respect of climate change and other environmental, social and governance (ESG) matters.

Policies and procedures

The Listing Principles underpin the detailed listing rule requirements and are enforceable as rules. They will require compliance with the requirements set out in the new Listing Rules described above. In particular, Listing Principle 1 requires listed companies to take reasonable steps to establish and maintain adequate procedures, systems and controls to enable them to comply with their obligations as listed companies, which will include the new requirements. Premium listed commercial companies will therefore need to review their procedures, systems and controls to ensure that they support the new requirements.

_{¹https://www.fca.org.uk/publication/consultation/cp20-3.pdf}

_{²https://www.gov.uk/government/publications/green-finance-strategy}

_{³https://www.fca.org.uk/publication/feedback/fs19-6.pdf}

_{⁴See our publication “Review of the Non-Financial Reporting Directive: towards an EU-wide ESG reporting standard.}

_{⁵https://www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-2017-TCFD-Report-11052018.pdf}

_{⁶See Appendix 3 in the FCA consultation document CP20.3.}

_{⁷https://www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-TCFD-Annex-062817.pdf}

_{⁸https://www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-TCFD-Technical-Supplement-062917.pdf}

_{⁹https://www.frc.org.uk/getattachment/85121f9f-15ab-4606-98a0-7d0d3e3df282/FRC-Lab-Climate-Change-Final.pdf}

_{¹⁰https://www.frc.org.uk/news/february-2020-(1)/frc-assesses-company-and-auditor-responses-to-clim}