FRC identifies TCFD disclosures as area of focus

December 14th, 2023

The Financial Reporting Council (FRC) will include climate-related risks, including Task Force on Climate-Related Financial Disclosures (TCFD), as one of its key areas of supervisory focus for 2024/25 financial year.

The UK regulator outlined four areas of focus that its programme of corporate reporting reviews and audit quality inspections will pay particular attention to next year.

Alongside climate-related risks, the FRC will focus on risks related to the current economic environment, implementation of IFRS 17 and cash flow statements.

The FRC has also identified five priority sectors to focus on next year: construction and materials, food producers, gas, water and multi-utilities, industrial metals and mining and retail.

Sarah Rapson, the FRC’s executive director of supervision, said: “During periods of economic uncertainty, it is especially vital that companies provide users of annual reports and accounts with decision-useful information.

“While the overall quality of company reporting we have seen remains consistent, companies should continue to familiarise themselves with FRC findings and expectations to ensure they are providing high quality disclosures.”

Minerva Analytics research into these sectors found most companies directly reference TCFD guidelines in their annual reports, with only five of 67 companies surveyed saying they do not directly reference the guidelines.

However, of those companies 28 had not had their sustainability data independently verified in their most recent annual report.

In latest financial year, of the companies with environmental KPIs in their annual reports, 15 had set a carbon emissions target and 42 had set greenhouse gas emissions targets, while seven set targets in both categories.

There has been little change in these figures compared to the previous year, when 15 companies has set a carbon emissions target, 45 has set greenhouse gas emissions targets and six has set targets for both.

Although many companies have created a dedicated ESG or sustainability committee with responsibility for the firm’s management of ESG disclosures, the majority place the ultimate responsibility with their board of directors.