The Financial Reporting Council (FRC) in the UK recently conducted its first thematic review to evaluate the climate-related financial disclosures of AIM-listed companies and large private firms. This review holds significant weight as it addresses the initial round of mandatory climate reporting, which was introduced through new regulations in the past year. For this assessment, the FRC analyzed the annual reports and financial statements of 20 companies subjected to these updated reporting standards.
The primary aim of the FRC’s review was to assess whether these companies were fully compliant with the newly established climate-related disclosure requirements. However, the results revealed mixed outcomes. While many companies made attempts to adhere to the new rules, the overall quality of climate-related reporting varied considerably. One of the most notable findings was that there was substantial room for improvement, particularly regarding the clarity and ambition of climate-related targets and the measurement of progress toward these goals.
A significant issue highlighted by the FRC was the lack of detailed and precise climate-related targets set by many businesses. Although most companies included some form of climate-related goals, these targets were often vague, without specific metrics or timelines to track their progress. This lack of clarity made it difficult for external stakeholders, including investors and regulators, to evaluate whether the companies were effectively working toward their climate commitments. The absence of clear and measurable objectives creates a level of uncertainty that hampers trust in a company’s sustainability efforts and its long-term commitment to addressing climate change.
Another critical area of concern was the insufficient information provided about the systems and methodologies companies were using to measure and track their climate progress. Transparency about the tools, processes, and metrics used to assess performance is essential for stakeholders to make informed decisions based on reliable data. Without a clear understanding of the mechanisms in place to monitor and evaluate progress, companies risk presenting an incomplete and unclear picture of their climate-related actions.
Furthermore, many companies focused primarily on outlining their climate-related goals, describing their intentions without providing adequate details on the steps they would take to achieve them. While setting goals is an essential first step, it is equally important to communicate how these objectives will be accomplished. Without a clear roadmap for implementation, it becomes difficult for stakeholders to assess whether the companies are truly dedicated to meeting their climate goals or simply engaging in greenwashing. To build credibility and earn the confidence of investors and other stakeholders, businesses must demonstrate not only their ambitions but also the concrete actions and strategies they will implement to realize those ambitions.
Looking ahead, the FRC has stressed the importance of enhancing the quality and consistency of climate-related disclosures. As the regulatory landscape continues to evolve, it is expected that companies will increasingly need to align their reports with internationally recognized standards and frameworks. This alignment will ensure that the climate-related data provided is not only consistent and reliable but also actionable for stakeholders who depend on accurate and timely information for decision-making.
The FRC’s thematic review represents a significant milestone in the UK’s efforts to enhance climate-related transparency. It serves as a crucial reminder for companies to refine their climate disclosures, ensuring they are comprehensive, clear, and actionable. By improving the quality of these disclosures, businesses can foster greater trust with stakeholders, reinforce their commitment to sustainability, and contribute to the global effort of transitioning toward a low-carbon economy.
