Regulators both in the UK and the EU are beginning to prioritise supervision of climate-related disclosures. The UK Financial Reporting Council (FRC) published its Climate Thematic in November 2020 in which it stated that it was generally unclear “how forward-looking assumptions and judgements applied in preparation of the financial statements were consistent with narrative discussion of climate change”.
In October 2021, the FRC published its Annual Review of Corporate Reporting, outlining its ‘top ten’ areas where reporting improvements are required. On climate, the FRC said that it expected for companies’ 2021/22 reporting to see “… material climate change policies, risks and uncertainties to be discussed in narrative reporting and appropriately considered and disclosed in the financial statements, particularly where investors may reasonably expect a significant effect on the expected life or fair value of an asset or liability”.
Finally, the FRC announced its supervisory priorities for 2021/22, with the most pressing task being a thematic review – in collaboration with the FCA – of the first batch of TCFD disclosures provided by premium listed companies, as well as reviewing the extent to which the financial statements reflect the impact of climate change.
In a similar vein, on 29 October 2021, the European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, issued its annual Public Statement on European Common Enforcement Priorities for 2021 annual reports, highlighting, among others, the integration of climate-related matters into financial reports. The Statement calls out, quite explicitly, expectations around better consistency between IFRS financial statements and non-financial information as well as how climate-related matters may be addressed in financial statements under the current IFRS regime.