FRC thematic review: climate-related financial disclosures by AIM and large private companies

On 21 January 2025, the FRC published a thematic review of climate-related financial disclosures (CFD) by AIM and large private companies, following the first cycle of mandatory reporting.

For accounting periods beginning on or after 6 April 2022, the Companies Act 2006 (Act) requires mandatory CFD by entities with more than 500 employees which are:

• traded, banking, insurance or AIM companies; or
  
  
• private companies or LLPs with turnover exceeding £500 million.

The FRC review found that, while preparers have endeavoured to meet the CFD requirements, there was inconsistent quality among the companies selected.

The report sets out examples of good practice and identifies areas where preparers can provide more consistent, coherent and concise disclosures.

Areas of improvement identified for most companies included:

• An analysis of the resilience of the company's business model and strategy considering different climate-related scenarios is required by the Act. However, several companies failed to provide any analysis, with others providing disclosures that were not sufficiently company specific.
  
  
• Disclosures in relation to climate-related targets and assessment of progress against these targets using KPIs require improvement. Only half of the companies presented all of this information. For some companies, it was unclear whether targets were in place but not disclosed, or if there were no targets to disclose.
  
  
• Almost all companies explained the company's governance arrangements in respect of climate-related risks and opportunities, but the disclosures were sometimes unstructured and spread throughout the annual report and accounts without specific cross-references.
  
  
• Information explaining the climate-related risk assessment and management process and its integration with the overall risk management process was generally compliant with the Act. However, some companies failed to explain the way in which climate-related risks and opportunities were identified.
  
  
• Most companies disclosed climate-related risks. However, opportunities were not always identified and the timeframes over which risks and opportunities were assessed were not always described.
  
  
• Some companies voluntarily based their disclosures on the TCFD framework. However, a number of these companies failed to present one or more of the CFD disclosures required by the Act. The FRC noted that the CFD requirements are not identical to the TCFD framework and that all CFD must be included unless an available exemption applies.
  
  
• Some companies referred to climate-related information presented outside of the annual report and accounts (eg in a separate ESG report), which does not comply with the requirements of the Act.

The FRC expects companies and LLPs to consider the areas of good practice and opportunities for improvement set out in its report and to incorporate them in their future reporting, where relevant and material.

The FRC's key expectations are that companies and LLPs should:

• provide, in the annual report and accounts, all the disclosures required by the Act. Cross-referring to information presented outside the annual report and accounts does not comply with the requirements of the Act.
  
  
• present an entity-specific analysis of the resilience of the business model and strategy, taking into consideration different climate-related scenarios. This can be prepared on either a qualitative or quantitative basis.
  
  
• describe the targets used to manage climate-related risks, and to realise climate-related opportunities, and the KPIs used to measure progress against these targets.
  
  
• explain, where material and relevant, the financial statement effect of strategies introduced to manage climate-related risks and opportunities.
  
  
• ensure disclosures are clear, concise and entity-specific.

The FRC reminds preparers that good CFD disclosures do not have to be long or complex. Better disclosures were generally more concise and often conveyed information using tables or diagrams.

The FRC expects the quality of companies’ CFD to improve following this first year of application and will take that into account in its future correspondence with companies.