FRC Thematic Review on Climate-related Financial Disclosures by AIM and Large Private Companies

On 21 January 2025 the Financial Reporting Council (the “FRC”) published their Thematic Review into the climate-related financial disclosures which have been made by AIM and large private companies. In their review, the FRC looked at the annual reports and accounts of twenty companies across a variety of industries (from technology to basic materials and financial).

Background

For accounting periods starting on or after 6 April 2022 the Companies Act 2006 (the “2006 Act”) prescribed that mandatory climate-related financial disclosures (“CFDs”) are required by entities with more than 500 employees which are (1) traded (as defined in s.474(1) of the 2006 Act), banking, insurance or AIM companies; or (2) private companies and limited liability partnerships with a turnover of over £500m.

Key findings

The FRC said that there was a broad range in the quality of disclosures and that for a number of companies, it was clear that this was the first time that they had made CFDs. 

The FRC felt that the better disclosures were those which were concise (rather than long and complex) and conveyed the required information using tables and diagrams. They also identified the following areas for improvement.

• Acknowledging that it can be difficult to provide a “scenario analysis” (an analysis of the resilience of a company’s business model and strategy considering different climate-related scenarios), the FRC were critical of the generic disclosures provided by some companies and noted that several companies didn’t provide an analysis at all.
• Only half of the companies reviewed set out their climate-related targets and assessed the progress against those targets using key performance indicators. Some companies did not refer to any climate-related targets at all and so it was unclear if there were targets in place or not.
• Disclosures about a company’s governance arrangements relating to climate-related risks and opportunities should be specific and made in a well-structured manner. The FRC found that there were a number of instances where these disclosures were unstructured and spread throughout the annual reports and accounts without clear cross-references.
• The FRC have requested an increase in disclosures on climate related opportunities as well as details of the timeframes over which the risks and opportunities were assessed. Companies are also reminded to explain how climate-related risks and opportunities were identified.
• The FRC noted that some companies voluntarily reported against the Taskforce on Climate-related Financial Disclosures (even though not required) but then did not provide all the CFDs required by the 2006 Act.
• The FRC also noted that presenting CFDs outside of the annual report and accounts (as some companies did) does not comply with the requirements of the 2006 Act. In particular, it is not sufficient for a parent company to refer to disclosures in a subsidiary’s annual report and accounts.

Throughout the Review the FRC has shared examples of good practice (see the grey boxes), which provide helpful guidance to companies as they look to improve their reporting this year.

Next steps

If you would like to discuss the Review or any of the points raised above, please contact Nick Graves, AJ Venter or Charlotte Hamilton.