UK Regulator’s new code a ‘missed opportunity’ to address climate risk

The Financial Reporting Council’s (FRC) updated UK Corporate Governance Code, released today, fails to sufficiently address climate risk, according to environmental lawyers ClientEarth.

The accompanying Guidance on Board Effectiveness identifies the recommendations of the Taskforce on Climate related Financial Disclosure (TCFD) as one of several frameworks that can “help identify social and environmental considerations … relevant for the business and link these to company strategy” and that are “useful in informing and communicating business strategy”.

ClientEarth believes this minimal reference in the FRC guidance does not reflect the true importance of the TCFD recommendations – or climate risk more broadly.

ClientEarth lawyer Dave Cooke said: “We are disappointed the FRC has not integrated the TCFD recommendations more fully in the corporate governance and reporting framework. The FRC has missed an opportunity here - it has failed to take sufficient steps to address climate risk as one of the leading concerns of shareholders.

“The FRC has misunderstood the critical importance of the TCFD recommendations. The minimal reference to the recommendations appears in the section of the FRC guidance on relations with stakeholders. This completely misses the point that the TCFD recommendations focus on the financial implications to the business from climate change and consequently fails to recognise the central importance of climate risk information for shareholders.”

This misunderstanding continues to put the FRC at odds with the UK Government, the Environmental Audit Committee, the Green Finance Taskforce, the Bank of England and other financial regulators across the globe who have all endorsed the TCFD recommendations.

ClientEarth has already expressed concerns about the FRC’s approach to oversight and enforcement of climate risk reporting. Combined with the identified cultural problems at the regulator that led to the Kingman review, ClientEarth cannot see how the new FRC guidance will lead to better disclosure of climate risk.

Investors will be no better equipped to appropriately assess and price climate-related risks and opportunities.

ClientEarth submitted complaints to the FRC in 2016 when it found that two energy companies, Cairn Energy and SOCO International, had failed to disclose climate-related risks adequately.

Despite improved reporting the following year, the regulator failed to reach a decision as to whether there had been a breach of reporting requirements or provide guidance to companies clarifying that climate risk reporting is required under the law.