Corporate Briefing - September 2023

FRC review of climate-related metrics and targets

The Financial Reporting Council (“FRC”) has published a Thematic Review on climate-related metrics and targets in listed companies' annual financial reports. The review analysed disclosures from 20 listed (premium and standard) companies in asset management, banks, energy, and materials sectors.

Key findings

• There has been an incremental improvement in reporting but many companies are struggling to present a clear message to investors about which metrics and targets are materially important for managing climate-related risks and opportunities and their transition plans.
• Most companies have set net zero or other climate-related targets, but the metrics used to track progress were sometimes unclear and explanations of performance were not always provided. Better practice examples outline expected steps to meet their targets, highlighting areas of judgement and uncertainties such as reliance on technological advances.
• It was often difficult to determine the extent to which the impact of targets on the financial statements had been considered, due to lack of company-specific disclosures. Better practice examples cited the assumptions made in respect of useful economic lives and the potential impact on key asset balances.

Main areas for further improvement overall are:

• the definition and reporting of company-specific metrics and targets, beyond headline ‘net zero’ statements;
• better linkage between companies’ climate-related metrics and targets and the risks and opportunities to which they relate;
• the explanation of year-on-year movements in metrics and performance against targets;
• transparency about internal carbon prices, where used by companies to incentivise emission reduction; and
• better linkage between climate-related targets reported in TCFD disclosures and ESG targets disclosed in the Directors’ Remuneration Report.

In the second year of TCFD reporting, the FRC is more likely to engage more actively with companies that do not meet disclosure expectations, especially when climate change is significant for the company. During 2022-23, the FRC wrote to 16 companies either to seek more information about how climate change has been considered in their financial statements or to highlight areas where disclosures could be improved. The FRC will continue with this regulatory approach going forward.

LSE Dividend Procedure Timetable 2024

The London Stock Exchange plc (the “Exchange”) has published its dividend procedure timetable for 2024. Companies with shares listed on the Main Market or on AIM and which follow the dividend procedure timetable are not required to notify the Exchange in advance of their timetable provided the dividend announcement contains the required information. 

The content of the 2024 procedure timetable is largely similar to the 2023 dividend procedure timetable save that:

• The announcement must now include the currency of the dividend; and
• A template is now available for issuers to use when submitting dividend announcements.

Primary Market Bulletin No.45 and IFRS Sustainability Disclosure Standards

The FCA has published Primary Market Bulletin No.45 on the first two IFRS Sustainability Disclosure Standards (“ISSB standards”):

• IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information; and
• IFRS S2 Climate-related Disclosures.

The FCA, along with the UK government, welcome these standards which deliver a global reporting standard for corporate sustainability disclosures. The next step for the UK government is to endorse and implement these in the UK and the FCA proposes to consult, in the first half of 2024, on amending the Listing Rules on TCFD-aligned disclosures to refer to the UK-endorsed ISSB standards. It is envisaged that the revised Listing Rules will apply for financial years beginning on or after 1 January 2025.  Companies with a 31 December year end will need to consider the new requirements when reporting in 2026.

The FCA encourages companies to consider the new standards now and to build them into their plans for future reporting whilst continuing to improve their climate reporting against the TCFD recommendations and associated guidance.