New rule will require listed companies to state whether they have made disclosures in accordance with the TCFD.

By Paul A. Davies, Nicola Higgs, Chris Horton, and Michael D. Green

On 21 December 2020, the Financial Conduct Authority (FCA) confirmed in a published Policy Statement[1] (the Statement) that it will introduce a new Listing Rule (the Rule) requiring premium listed companies to state whether they have made disclosures pursuant to the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, and if not, why.

The Rule comes in response to the FCA’s March 2020 Consultation Paper, under which the FCA sought to enhance climate-related disclosures by listed issuers and to clarify existing disclosure obligations. The Rule is a forerunner to the UK’s plan to fully align corporate disclosure with the TCFD by 2025. The Statement sets out that “better disclosure about organisations’ exposure to climate change risks and opportunities will lead to more informed pricing and drive investment towards greener projects and activities”, helping support net zero emissions ambitions. The FCA is hopeful that the implementation of TCFD-aligned disclosures will pave the way for an eventual international standard for corporate reporting that is also integrated with financial reporting.

The Rule

The Rule (LR 9.8) will apply for accounting periods beginning on or after 1 January 2021. It will require companies with a UK premium listing to include a statement in their annual financial report setting out:

  • Whether they have made disclosures consistent with the TCFD recommendations
  • An explanation if they have not made disclosures consistent with some or all of the TCFD recommendations
  • Whether they have included some, or all, of their disclosures in a document other than their annual financial report, alongside an explanation of why
  • Where in their annual financial report (or other relevant document) the various disclosures can be found

The Rule will be accompanied by guidance aimed at helping listed companies determine whether their disclosures are consistent with the TCFD recommendations.

Next Steps

The FCA will monitor the outcomes of the Rule in various ways, including by:

  • Tracking whether the market rewards companies that manage climate change most effectively and monitoring the extent to which issuers are following the new requirements
  • Monitoring the overall development and quality of their disclosures
  • Gathering asset managers’ and life insurers’ views on how well investee companies’ disclosures support investments
  • Continuing to gather feedback on the effectiveness of its new regime via engagement with the Climate Financial Risk Forum

The FCA has also announced its intention in 2021 to consult on TCFD-aligned rules for a wider scope of listed companies, as well as asset managers, life insurers, and FCA-regulated pension schemes.

This post was written with the assistance of Sabina Aionesei in the London office of Latham & Watkins.


[1] The Statement contains a Technical Note clarifying existing climate-/ESG-related disclosure obligations in EU legislation and in the FCA’s Handbook.