The Financial Reporting Council (FRC) in the UK has published its first thematic review, focusing on the climate-related financial disclosures made by AIM-listed companies and large private entities. This review holds significant weight as it assesses the initial round of mandatory climate reporting, which became a statutory requirement following new regulations that were introduced in the previous year. In its review, the FRC analyzed the annual reports and financial statements of 20 companies that were subject to these updated rules.
The primary goal of the review was to assess the quality and effectiveness of these climate disclosures, examining whether the companies were fully compliant with the newly mandated requirements. The findings, however, were mixed. While the majority of companies made an effort to comply, the overall quality of the climate-related reporting was inconsistent. Key areas for improvement included the disclosure of climate-related targets and the evaluation of progress made towards achieving those goals.
One of the primary observations was that, while most companies outlined their climate-related targets, the detail and clarity around these targets were often lacking. Many of the targets set were vague, with little indication of specific metrics or timelines for achieving them. This made it difficult to assess whether a company was genuinely making progress toward its climate-related goals. For stakeholders, such as investors and regulators, this lack of specificity creates uncertainty and makes it hard to evaluate whether companies are addressing climate change with the urgency required.
Moreover, the review found that many companies failed to provide enough information about the systems they were using to measure and report on their climate-related progress. This lack of transparency creates a gap in the information available to stakeholders who rely on these disclosures to make informed decisions. It is crucial for businesses to not only set climate-related targets but also demonstrate how they plan to achieve them and report on their progress in a clear and consistent manner.
The FRC also noted that some companies appeared to focus on the ‘what’ of their climate-related goals but gave little insight into the ‘how.’ Without concrete details about the processes and mechanisms in place to achieve sustainability objectives, it is difficult for external observers to determine if companies are genuinely committed to tackling climate risks. Transparent and actionable reporting is key to maintaining stakeholder confidence and ensuring that companies are contributing to the broader global effort to transition to a more sustainable economy.
Looking ahead, the FRC has stressed the need for companies to improve the quality and consistency of their climate disclosures. As the statutory requirements evolve, companies are expected to align their reporting more closely with globally recognized standards and frameworks. This alignment will help ensure that climate-related data is not only reliable but also meaningful for decision-making.
The FRC’s review represents an important milestone in the UK’s journey toward more transparent and effective climate reporting. It serves as a critical reminder for companies to refine their climate-related disclosures and provide stakeholders with clear, comprehensive, and actionable information. Only through such improvements will businesses be able to demonstrate their commitment to sustainability in a way that resonates with all stakeholders and supports the global transition to a low-carbon economy.
