Make climate risk reports mandatory for 480 FTSE firms, say investors

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An influential group of investors is urging UK regulators to make climate risk reporting mandatory for nearly 500 FTSE-listed firms.

The Investment Association (IA), which represents 250 members with GBP8.5tn in assets, has thrown its weight behind calls for compulsory environmental disclosures, amid concerns that listed companies are not being transparent about how climate risks are influencing the way they invest and spend.

While the number of FTSE 100 companies claiming they have implemented the Task Force on Climate-related Financial Disclosures (TCFD) framework has more than doubled in the past year, to 77, the IA said just 53% had published reports covering all four of the key categories – climate governance, strategy, risk management, and metrics and targets.

The IA is calling on the Financial Conduct Authority to make TCFD reporting mandatory for all 480 premium-listed FTSE companies. It made its views known in a recent consultation on the issue which closed on 1 October.

The call goes beyond current plans put forward by the FCA that would ask those premium-listed companies to release climate disclosures or explain why they have failed to do so, starting with reports released in 2022.

The IA said a “comply or explain” requirement should be introduced for all UK listed firms outside of the premium listings. There are about 1,140 firms listed on the UK stock exchange, according to the FCA.

Sarah Woodfield, the IA’s senior policy adviser for stewardship and corporate governance, said: Significant progress has been made by the FTSE 100 in reporting the impact climate change will have on their businesses. But the UK’s largest companies must now go further and set out in detail how they are managing their resources to respond to these risks.”

Woodfield said savers and investors would suffer if company valuations plunged due to poor climate risk management. “That’s why the investment management industry is now calling on the UK regulator to make TCFD disclosure mandatory for all commercial companies with a premium listing. This disclosure will enable investors to price climate risk effectively into their investment decisions and as long-term stewards to provide support and challenge to companies to transition to more sustainable business models.”

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Even before the regulator takes action, the IA expects firms to improve reporting in the interim. The industry body will be setting out shareholders’ priorities for the 2021 annual shareholder meeting season this autumn, and is likely to urge companies to further detail their climate crisis strategies and spending decisions.

The FCA said: “We welcome the Investment Association’s response and will give careful consideration to their views, alongside those of other respondents. We will consider these views as we look to finalise our policy position this winter.”

Members of the UN-backed Net-Zero Asset Owner Alliance – which includes Aviva, the Church of England and the $400bn (GBP310bn) US fund CalPERS – plan to set decarbonisation targets for 2025 as part of wider efforts to align their portfolios with the Paris climate goals and achieve net zero emissions by 2050.

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