Q&A
ESG reporting requirements for UK listed companies are determined by the Listing Rules and the Companies Act 2006. The requirements vary depending on the type of company and its listing status.
Binding ESG reporting requirements
The Financial Stability Board created the Task Force on Climate-related Financial Disclosures (TCFD) to improve and increase reporting of climate-related financial information. The TCFD has set out recommendations for disclosure in its report.
Under the FCA Listing Rules (LR 9.8.6R (8) and LR 9.8.7R) UK incorporated and overseas commercial companies with a premium listing are required to state in their annual financial report whether they have made disclosures consistent with the recommendations of the Taskforce on Climate related Financial Disclosure (TCFD) or explain if they have not done so.
The FCA’s policy statement PS20/17 sets out the background to a reasons for the introduction of these new rules and also sets out the FCA’s view that issuers may already be required to make disclosures on climate-related and other ESG matters under particular provisions of the Listing Rules, Disclosure Guidance and Transparency Rules (DTR), MAR and the Prospectus Regulation, in certain circumstances.
The policy statement sets out how the FCA might consider such rules to be applicable but not in any clearly articulated manner.
Non-binding ESG reporting requirements.
In addition (and although not legally binding), the London Stock Exchange has issued guidance with recommendations for good practice in ESG reporting which have been endorsed by the Principles of Responsible Investment, (the “PRI”) which it has provided to all companies with securities listed on markets operated by the London Stock Exchange, i.e. including AIM.
The Companies Act 2006 codified directors’ fiduciary duties and introduced a new concept of acting in the best interests of the company and taking account of wider interests.
Specifically, Section 172(1) of the Companies Act 2006, requires a director to “…have regard…to…(d) the impact of the company’s operations on the community and the environment.”
The Companies (Miscellaneous Reporting) Regulations 2018 amended s. 414C of the Companies Act to provide that a strategic report for a financial year of a company must include a statement which describes how the directors have had regard to [the impact of the company’s operations on the community and the environment] when performing their duty under section 172.
In effect, the UK Companies Act maintains the primary duty of directors to maximise shareholder value but directors should aim to do so in a ‘socially responsible’ manner and report on this to shareholders.
There has been no specific case law on how this balance between the interests of members and these wider considerations should be struck. The attainment of ESG objectives must therefore be carefully calibrated to align with shareholder interests.
Published – 11/04/21
