What overseas entities need to know about UK TCFD reporting
January 2023
UK TCFD reporting recap: In November 2020, the UK Government announced its intention to make TCFD-aligned disclosures mandatory across the economy by 2025, and published a Roadmap outlining how it would achieve that ambition.
The UK TCFD reporting requirements are being introduced through various formal sectoral regulatory regimes led by the Department for Business, Energy and Industrial Strategy (BEIS), the Financial Conduct Authority (FCA), and the Department for Welfare and Pensions (DWP). These reporting requirements will have obvious implications for UK companies but also have extraterritorial effects with serious implications for non-UK entities.
How are non-UK entities impacted?
The UK TCFD requirements impact a range of non-UK entities, for example:
- Non-UK entities that are listed in the UK will have to comply with the FCA Listing Rule1 requiring entity-level reporting in line with the TCFD recommendations.
- UK parent companies are expected to report on the global operations of their group under the BEIS Regulations2, regardless of whether the activities are conducted through a UK subsidiary or an overseas subsidiary.
- UK companies with an overseas parent have to report at company level under the BEIS Regulations (even if they are also included in an equivalent consolidated group report produced by their overseas parent).
The FCA and BEIS worked together to design their regulations and have endeavoured to make the requirements as interoperable as possible. For example, both regulations require in-scope companies to report in line with the TCFD recommendations and recommended disclosures, and compliance with both regulations will be examined in the first instance by the same supervisory body (the Financial Reporting Council (FRC))3.
What challenges does this present?
The UK approach presents several challenges for international companies:
- Companies must find a way to navigate the dual reporting requirements they face from having to comply with both overseas and UK regulation. For example, EU companies that are listed in the UK will have to comply with the EU Corporate Sustainability Reporting Directive (CSRD) and the UK TCFD Listing Rule, each of which applies to a different scope of entities, has different assurance requirements and requires different detailed disclosures. Companies will need to establish a process for examining their activities through multiple reporting lenses in order to determine what activities they will have to report on and the information that they will need to obtain, and look for ways to streamline that process to minimise the costs posed to their business.
- Companies must also think about obtaining the data they will need to disclose, particularly where they are relying on overseas entities within their group to provide that data. For example, UK parent companies required to produce group-level reporting capturing their overseas subsidiaries will need to make sure that those subsidiaries know what data they will need to gather and set up processes to do so.
- UK companies with an overseas parent will need to determine whether they are required to produce a separate UK report. Even if they are included in the consolidated group of their overseas parent, UK companies may have to produce a separate report if they meet the scoping criteria in the BEIS Regulations4. In these situations, the company must familiarise themselves with their reporting obligations under the BEIS Regulations and ensure they develop the capacity and capability to report. Companies in this position will need to understand what is appropriate to leverage from the approach taken by their parent and where they will need to develop a UK-specific approach.
- Companies will need to consider how best to present this information in their Annual Reports and websites so that they comply with regulatory requirements and aslo meet the information needs of consumers and investors.
Looking ahead
On 18 October 2021, the UK Government published its plans for a new UK Sustainability Disclosure Requirements regime (SDR) that will subsume UK TCFD requirements. This new regime, along with other UK-specific regulations being issued by the Government such as the UK Green Taxonomy, could amplify the challenges firms are already facing.
To meet the challenges posed by the wave of new ESG regulation in the UK, companies should consider the synergies between the different regulations they will have to comply with and look for ways to implement them thematically across their organisations. There is some commonality between, for example, EU regulations such as the EU Taxonomy, CSRD and the Sustainable Finance Disclosure Regulation (SFDR) and UK regulations such as the UK Green Taxonomy and SDR that companies can use to inform this process.
1. The rule applies for accounting periods beginning on or after 1 January 2021 for companies with a UK premium listing. The rule applies for accounting periods beginning on or after 1 January 2022 for standard listed companies.
2. The Regulations came into force on 6th April 2022 and apply in respect of any financial year of a company which commences on or after that date.
3. See Primary Market Bulletin 36 for more detail.
4. See BEIS guidance for more detail.
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