UK Drops Mandatory Climate Disclosure Plans

Photo by Benjamin Davies on Unsplash

The UK has dropped plans to implement mandatory climate-disclosure requirements for listed companies.

The UK’s Financial Conduct Authority (FCA) confirmed on 30 September its decision not to make climate-related disclosures mandatory for listed companies, retaining a “comply or explain” process instead. The proposed requirements would have aligned reporting with the UK-endorsed ISSB sustainability standards.

The FCA cited implementation costs and competitiveness concerns for the decision. However, the step away from mandatory climate reporting comes at precisely the time investors and other regulators have been pushing toward more standardised publication of company climate data.

Companies listed in the UK will now retain more flexibility over climate reporting, with investors missing out on greater clarity and consistency in the quality of climate-risk information available to them.

The comply or explain regime to be retained allows companies a choice: to either fully follow a specific rule (”comply”) or publicly explain why they have chosen not to, or cannot, follow it (”explain”). The benefit of this is essentially pitched as one that offers flexibility based on a company’s unique business profiles, size, or industry limitations. However, this inevitability leaves room for inconsistencies and more limited disclosures to emerge.

Notably, carbon emissions and physical climate risk data will not be made mandatory, something that had previously been expected. Companies will instead be able to avoid publishing this data and insight, provided that a public justification for not doing so is published.

It should be noted that any public justification for not publishing climate data has to be considered valid by the FCA, so companies can’t just ignore climate considerations. Companies using the London Stock Exchange as a secondary listing (in order to access UK investor capital) will now also be brought into the “comply or explain” process, which they were previously excluded from.

The competitive concerns alluded to by the FCA come from countries with lesser regulation, including the USA and China. The UK is undoubtedly operating in a challenging international market. However, at a time when the risks of climate change are becoming so clear to us all, action to improve preparedness would seem like common sense. Significant action is required and pretending this isn’t the case will not help the UK over the long-term.