The FRC’s advice on getting your Climate-related Financial Disclosures right

The Financial Reporting Council (FRC) recently reviewed the first year of mandatory Climate-related Financial Disclosures (CFD) for AIM and large private companies. The verdict? Despite the effort, quality was all over the place. Some fared better, while many stumbled on crucial elements like scenario analysis, targets, and KPIs.

Here are the key takeaways:

1. Keep it clear and concise

Of the companies reviewed, a quarter of the content in their strategic reports focused on CFD. The disclosures were often long, rambling, and hard to follow. Governance information was sometimes buried or scattered, like a climate reporting ‘Where's Wally?’.

Instead, companies should present clear, concise disclosures. The best examples used visuals like charts and tables to present complex information, like outlining climate-related risks and opportunities (CRROs).

2. Be detailed and specific

CFD reporting needs to be thorough, explaining not just the what but also the how and the why. Companies provided enough detail about their risk assessment and management process. But some didn’t explain how they identified CRROs, their potential timelines, and how managing them affected their bottom line.

3. Meet the requirements

A lot of companies missed the mark on compliance. Some referred to required disclosures outside their annual report, others skipped scenario analysis entirely, and only half provided climate-related targets and KPIs. Recognising this is new territory for many businesses, the FRC says it expects reporting standards to improve – a polite way of saying ‘must do better’.

4. Cover all the bases, if you’re using TCFD

The Task Force on Climate-related Financial Disclosures (TCFD) framework can be used to prepare CFD, but several companies who did this failed to meet all the Act’s requirements.  Although CFD is similar to TCFD, there are key differences. Notably, TCFD operates on a 'comply or explain' basis and allows external referencing, whereas CFD requirements  are mandatory (with some exceptions) and disclosures have to be included in the annual report.

Final thoughts

The FRC recognises that for most companies, there’s going to be a learning curve when it comes to CFD. Their review sets a useful benchmark for future reporting, and as the regulatory landscape continues to evolve (think ISSB-aligned Sustainability Reporting Standards), companies will need to keep adapting, to meet their shareholders’ growing expectations.

Need help navigating these changes? Get in touch at [email protected].