Voluntary environmental, social and corporate governance (ESG) reporting

LexisNexis Legal & Professional, LexisNexis UK, LexisPSL, Environment, 1 September 2021

Produced in partnership with CLT Envirolaw

Trend towards environmental, social and corporate governance (ESG) reporting

Heightened emphasis on transparency and accountability through corporate governance and disclosure has renewed the focus on the ‘triple bottom line’—environmental, social and economic impacts. Environmental, social and corporate governance (ESG) reporting generally measures the sustainability and ethical performance of a company.

There is increasing interest in the ESG performance of companies by various stakeholders. A range of mechanisms exist to shape CSR and foment voluntary reporting by companies on their ESG performance. Adhering to one such framework heightens credibility, and a proactive approach to sustainability presents opportunities while ensuring a company’s preparedness to embrace evolving legal requirements.

Stock exchanges are also encouraging voluntary disclosure on ESG. At the RIO+20 conference, a group of stock exchanges held forums to explore how exchanges can work together with investors, regulators and companies to enhance corporate transparency and ESG performance and encourage responsible long-term approaches to investment. Some stock exchanges, such as the Johannesburg Stock Exchange and Singapore Exchange SGX, are already requiring listed companies to provide disclosures on sustainability issues.


UNCTAD Sustainable Stock Exchanges Initiative

Johannesburg Stock Exchange

The London Stock Exchange Group has issued guidance for issuers on the integration of ESG into investor reporting and communication. The aim of the guidance is to:


Revealing the full picture—Your Guide to ESG reporting

  • make companies aware of the importance of providing quality ESG information
  • stimulate interest in the innovation opportunities opened by this new economic paradigm
  • enable richer data flows and dialogue on ESG between issuers and investors
  • support the consolidation of sound global reporting standards
  • enable investors to make better informed investment decisions

Companies that report on corporate responsibility and environmental performance are listed on the Corporate Register.

The World Business Council for Sustainable Development and the Climate Disclosure Standards Board released a report mapping global and regional ESG reporting trends, which found that the number of sustainable reporting requirements has increased more than ten-fold in the last 25 years. This highlights the increasing importance of ESG issues for the finance community and businesses. For more information, see: LNB News 27/02/2018 101 and Practice Note: Environmental social governance—the investment market.

A second report in the same series reveals opportunities for harmonisation in sustainability and corporate governance reporting. For more information, see: LNB News 26/03/2018 81.

A third report analyses differences in ESG reporting, market maturity levels and national contexts between sectors. For more information, see: LNB News 13/06/2018 43.

For more information about environmental reporting, see Practice Notes: Mandatory environmental reporting and Voluntary environmental reporting.

EU Corporate Responsibility policy

As part of the EU policy on CSR published in 2011, various measures are being taken at the EU level to increase the prominence of CSR by 2014. The importance of transparency and the responsibility of enterprises for their impacts on society was reinforced in 2013 when the European Parliament adopted two resolutions:

  • Corporate Social Responsibility: accountable, transparent and responsible business behaviour and sustainable growth; and


European Parliament resolution of 6 February 2013 on corporate social responsibility: accountable, transparent and responsible business behaviour and sustainable growth

  • Corporate Social Responsibility: promoting society’s interests and a route to sustainable and inclusive recovery


European Parliament resolution of 6 February 2013 on Corporate Social Responsibility: promoting society’s interests and a route to sustainable and inclusive recovery

The European Commission cemented its commitment to CSR by adopting Directive 2014/95/EU on disclosure of non-financial and diversity information. It outlines mandatory non-financial reporting requirements for large companies of over 500 employees which, on their balance sheet dates, exceed either a balance sheet total of EUR 20 million or a net turnover of EUR 40 million. See Practice Note: Directive 2014/95/EU on disclosure of non-financial and diversity information—snapshot.

For information on EU sustainable finance, see Practice Notes: Global and EU sustainable finance initiatives and Sustainable finance—recent news.

UK Corporate Responsibility policy

The Department for Business, Innovation and Skills issued a call for views on corporate responsibility in June 2013. The consultation responses were expected to help BIS develop a framework for action on corporate responsibility by the end of 2013 that would:

  • enable a common understanding of what corporate responsibility is
  • result in greater adoption of corporate responsible practice by businesses that takes into account international principles and guidelines
  • encourage more businesses to report in a consistent, comparable manner
  • confirm a set of voluntary metrics for businesses to adopt (and if desired make public eg in an annual report)
  • reach a common understanding of the importance of effective and transparent supply chain management and help UK businesses effectively manage their supply chains
  • encourage more small and medium-sized enterprises to adopt responsible business activities

In April 2014, the Department for Business Innovation and Skills published Corporate Responsibility: Good for Business & Society: government response to call for views on corporate responsibility. It states that the responses enhanced government understanding of the importance of corporate responsibility to sustainable growth and where relevant will inform future government action. However, no framework for an action plan has been created. The annex provides limited examples of good practice and case studies.

ESG reporting schemes and initiatives

A broad range of voluntary schemes and initiatives are available globally to assist in ESG reporting. Table 1 summarises the features of some of these schemes.

Table 1: Summary of voluntary ESG schemes available internationally




Aimed at

Global Reporting Initiative Sustainability Reporting Standards

Standards for reporting sustainability information.


- All organisations

International Integrated Reporting Council (IIRC) draft Integrated Reporting Framework

Framework for integrated reporting.


- All organisations

OECD Guidelines for Multinational Enterprises

Guidelines for implementing corporate responsibility.

Corporate responsibility

- Governments

Climate Disclosure Standards Board

Natural and financial capital

ESG and climate change

- All organisations

Sustainability Accounting Standards Board

Maintains sustainability accounting standards to help public corporations disclose sustainability material


- Public bodies

A number of voluntary schemes are also available specifically for reporting on greenhouse gas emissions. See Practice Note: Voluntary greenhouse gas reporting.

GRI Sustainability Reporting Standards

The Global Reporting Initiative (GRI) is an international standards body allied to the UN Global Compact.

In October 2016, the GRI issued the Sustainability Reporting Standards (SRS). The SRS are the first global standards for sustainability reporting and replace the existing G4 Guidelines, which were phased out as of 1 July 2018.

The SRS are based on the G4 Guidelines and comprise 36 modules covering such topics as greenhouse gas emissions, energy and water use and labour practices. For more information, see LNB News 20/10/2016 149.

 The G4 guidelines were published in 2013 and were aimed at:

  • increasing transparency among organisations
  • improving reporting practices, and
  • standardising company reporting on ESG information

The latest G4 version were intended to be more user-friendly and targeted at stakeholders’ requirements. The reporting process and final report focus on those topics that are material to a business and its principal stakeholders.

IIRC Integrated reporting framework

Integrated reporting is a voluntary reporting approach that links an organisation’s strategy, governance, and financial performance with the social, environmental, and economic context in which it operates. The non-financial information has to be integrated in the annual report, applicable organisation-wide.

During 2012, the International Integrated Reporting Council (IIRC) developed a consultation draft Integrated Reporting Framework which was published in April 2013. The final framework was published in December 2013.

OECD guidelines

The OECD Guidelines for Multinational Enterprises are the most comprehensive instrument for implementing corporate responsibility and are adopted by 42 governments. They were completed in June 2000 and updated in May 2011. Adhering governments commit to encourage enterprises operating in their territory to observe widely recognised principles and standards for responsible business conduct wherever they operate.

Among other requirements, the guidelines encourage enterprises to protect the environment, public health and safety, and conduct their activities in a manner contributing to the wider goal of sustainable development. In particular they are encouraged to adopt environmental management systems. The guidelines also encourage disclosure of material information in areas where reporting standards are still evolving, such as risk reporting.

The OECD has also produced specific due diligence guidance for certain sectors:

Comprehensive sustainability reporting regime for companies

Five leading global reporting standard-setters have agreed to work together to develop a comprehensive sustainability reporting regime for companies. The CDP, the Climate Disclosure Standards Board, the GRI, the International Integrated Reporting Council and the SASB have published a statement in which they commit to collaborate with each other and other international bodies, including the International Organization of Securities Commissions and the International Financial Reporting Standards Foundation (IFRS), to develop a globally relevant method of reporting sustainability measures within corporate reports and accounts. The statement outlines the standard-setters intent to provide joint market guidance on how their frameworks and standards can be applied in a complementary and additive way and includes an appendix which illustrates how the standard setters' combination of frameworks, standards and technology platforms provide the basis for a comprehensive corporate reporting system on climate change, using the four pillars of the Task Force on Climate-related financial Disclosures (TCFD). On 18 December 2020, a paper addressing standards for reporting on enterprise value, with a prototype climate-related financial disclosure standard was published. See: LNB News 18/12/2020 145. For more on the TCFD, see: Voluntary environmental, social and corporate governance (ESG) reporting—Climate related reporting below.

The IFRS Foundation has published a consultation on the global approach to sustainability reporting. The consultation closed on 31 December 2020. It follows an increased focus on ESG matters, developments in sustainability reporting and increased calls for standardisation of such reporting. The consultation aims to determine the demand for global sustainability standards and assess whether and to what extent the IFRS Foundation might contribute to the development of such standards. The consultation, among other things, seeks view on the establishment of a new Sustainability Standards Board, which will sit alongside the International Accounting Standards Board within the IFRS Foundation structure. In their initial response, the government and regulators supported the approach set out in the consultation paper. See: LNB News 10/11/2020 49.

ESG principles and commitments

A number of sectors have produced voluntary principles on ESG encouraging organisations in their industry to commit to. A summary of the main principles established internationally are set out in Table 2.

Table 2 Summary of key global principles




Aimed at

Equator Principles

Voluntary credit risk management framework for determining, assessing and managing environmental and social risk in project finance transactions.

Environmental and social risks

—Financial institutions

ClimateWise Principles

Voluntary framework for incorporating climate change risks into business operations.

Members commit to actions on the 6 Principles.

Climate change

—Insurance companies

—Other organisations

Principles for Responsible Investing

Voluntary framework for incorporating ESG into institutional investments.


—Institutional investors

Principles for Responsible Banking

Voluntary framework to assist the banking sector transition to a green economy


—Climate change


—Social impact

—Banks at all levels

United Nations Global Compact

Policy initiative for businesses seeking to align their strategies to ten universal principles.

—Human rights and labour



—All organisations

Equator Principles

The Equator Principles (EPs) are a set of guidelines that have been adopted by more than 101 banks and financial institutions in connection with project finance deals. The EPs provide a framework for assessing and managing the environmental and social risks associated with a project. Their aim is to eradicate the negative impact of projects on the environment and local communities or, where that is not possible, to ensure that such impacts are reduced, mitigated and/or compensated for appropriately.

The EPs were launched in 2003 by the International Finance Corporation (IFC). Since their launch, the EPs have been reviewed four times to reflect changes in environmental and social risk management best practice. The most recent draft of the Equator Principles (EP4) was published in November 2019. For more on the EPs, see Practice Note: The Equator Principles.

ClimateWise Principles

ClimateWise is a global insurance industry group aimed at driving action on climate change risk. The Principles, launched in 2007, provide a voluntary framework for incorporating climate change risks into business operations. Members are required to commit to:

  • lead in risk analysis
  • inform public policy making
  • support climate awareness among customers
  • incorporate climate change into investment strategies
  • reduce the environmental impact of their business
  • report and be accountable, including disclosing their direct GHG emissions using a globally recognised standard and publishing a statement in their annual report on actions taken on the principles

Principles for Responsible Investing

The United Nations-supported Principles for Responsible Investing (PRI) provide a voluntary framework for incorporating ESG into institutional investments. The Principles have been signed by more than 1200 organisations in industry, including asset owners, investment managers and professional service partners.

Signatories commit to:

  • incorporate ESG issues into investment analysis and decision-making processes
  • be active owners and incorporate ESG issues into ownership policies and practices
  • seek appropriate disclosure on ESG issues by the entities in which they invest
  • promote acceptance and implementation of the Principles within the investment industry
  • work together to enhance their effectiveness in implementing the Principles
  • report on activities and progress towards implementing the Principles

For more information on the PRI, see Practice Note: Sustainable finance and ESG—key global principles for financial institutions—Principles for Responsible Investing (PRI).


Principles for Responsible Banking

The UNEP Principles for Responsible Banking (PRB) were launched in 2019 and are an important tool for guiding the financial sector in the transition to a green economy. There are six Principles which serve as a guide to banks at all levels (ie portfolio, transaction, and strategic direction). Any signatory bank must undertake three key steps summarised below:


UNEP FI publishes Principles for Responsible Banking and supporting framework LNB News 25/07/2019 49

  • impact analysis: on the bank’s most significant potential positive and negative impacts on the societies, economies, and environments where it operates (covering its core business areas)
  • aligned target setting: set a minimum of two targets to improve impact of the bank’s identified impacts; targets must objectively bring the bank’s business and portfolio into alignment with the Sustainable Development Goals and Paris Climate Agreement, and implement them, and
  • accountability: publicly report on progress (ie in the bank’s existing public reporting)

For more information on the PRB, see Practice Note: Sustainable finance and ESG—key global principles for financial institutions—Principles of Responsible Banking (UNEP PRB).

United Nations Global Compact (UNGC)

The UNGC is a policy initiative for businesses seeking to align their strategies to ten universal principles regarding human rights and labour, anti-corruption, and the environment. Affiliated companies report on implementation in the format of a Communication on Progress (COP).

The principles state that businesses should:

In relation to human rights

  • support and respect the protection of internationally proclaimed human rights
  • make sure that they are not complicit in human rights abuses

In relation to labour

  • uphold the freedom of association and the effective recognition of the right to collective bargaining
  • eliminate all forms of forced and compulsory labour
  • abolish child labour
  • eliminate discrimination in respect of employment and occupation

In relation to the environment

  • support a precautionary approach to environmental challenges
  • undertake initiatives to promote greater environmental responsibility
  • encourage the development and diffusion of environmentally friendly technologies

In relation to anti-corruption

  • work against corruption in all its forms, including extortion and bribery

In 2013, the UNGC and the GRI renewed their memorandum of understanding with a view to aligning the new G4 Guidelines with the ten universal principles. This comparative table provides more information explaining the key differences between the UNGCs and UNGPs.

UN Guiding Principles Reporting Framework

The UN Guiding Principles Reporting Framework (Framework) was created to help companies report on their human rights performance. This Framework does not cover ESG as such. The Framework consists of 31 ‘smart’ questions and is divided into three parts focussing on the following issues:

  • the company’s commitment to and governance of human rights risk management
  • the focus on those human rights that are salient within the companies activities and business relationships
  • the effective management of each of the salient human rights issues on which the company is reporting

ESG indices

Environmental and ethical indices outline benchmarks to measure the sustainability and ethical practices of companies. They may be used by investors, shareholders, employees, asset owners, fund managers, investment banks, stock exchanges and brokers to assess or create responsible investment products.

Table 2 Summary of key environmental indices



Dow Jones Sustainability Indices

The first global index tracking performance of leading sustainability-driven companies worldwide. Questionnaires are sent to the CEO and heads of investors.

Global 100

Index which provides an annual list of the top 100 sustainable corporations globally.


CSR Index based on corporate social responsibility criteria.

Responsible Business Tracker

Provides a framework for companies to measure, manage and integrate responsible business practices into mainstream business operations. It is conducted by way of an online self-assessment survey.

The Sustainability Insight System (THESIS)

Index aimed at Walmart’s 100,000 suppliers. It has set itself a target that by 2017 that 70% of the goods it sells in the US will come from suppliers who use the index to evaluate and share the sustainability of products (formerly the Sustainability Index).

Stock Exchanges around the world also offer Socially Responsible Investment Index (SRI) options. For example:


  • the Johannesburg Stock Exchange SRI (JSE SRI Index)
  • the Istanbul Stock Exchange Sustainability Index (ISESI) in Turkey
  • the Corporate Sustainability Index (ISA) in Brazil
  • the Singapore Sustainability Index (SGX)

The Sustainable Stock Exchanges (SSE) initiative is organised by various UN bodies, together with the Principles for Responsible Investment. It is a peer-to-peer learning platform to explore how exchanges (working in collaboration with investors, regulators and companies) can enhance corporate transparency. A campaign was launched by the SSE to ensure that the World Federation of Exchanges (WFE) and SSE partner exchanges will provide listed companies with guidance on sustainability reporting by 2016.


Carrots Sticks Global trends in sustainability reporting regulation and policy, p-24

The SSE published Model Guidance on reporting ESG information to investors. It serves as a model technical tool for investors.

Climate related reporting

Taskforce on Climate-related Financial Disclosures (TCFD)

In December 2015, the Financial Stability Board (FSB) established an industry-led task force on climate-related financial disclosures. The task force was established to develop a set of voluntary, consistent disclosure recommendations for use by companies in providing information to investors, lenders and insurance underwriters about their climate-related financial risks.

The 32 members of the TCFD, from a wide range of industries and countries around the globe, finalised recommendations for effective disclosure of climate-related financial risks after extensive public engagement and consultation, including public consultation on a draft of the recommendations in December 2016.

The TCFD has developed four recommendations on climate-related financial disclosures that are applicable to organisations across sectors and jurisdictions. The recommendations are structured around four thematic areas:

  • governance: the organisation's governance around climate-related risks and opportunities
  • strategy: the actual and potential impacts of climate-related risks and opportunities on the organisation's businesses, strategy, and financial planning
  • risk management: the processes used by the organisation to identify, assess and manage climate-related risks
  • metrics and targets: the metrics and targets used to assess and manage relevant climate-related risks and opportunities

In March 2018, the Climate Disclosure Standards Board released a paper exploring how companies and businesses can use existing international accounting standards when implementing recommendations provided by the TCFD. The paper, ‘Uncharted waters: How can companies use financial accounting standards to deliver on the TCFD’s recommendations?’, followed the European Commission’s calls for the review of current International Financial Reporting Standards to assess the potential impact on sustainable investment in the 2018 Action Plan on Sustainable Finance.

Also in March 2018, nine leading pension funds, insurers, and asset management firms announced that they will work with the UN Environment Finance Initiative (UNEP FI) on guidelines towards a set of climate-related investor disclosures in alignment with recommendations provided by the TCFD. For more information on pensions and ESG, see Practice Note: ESG and stewardship issues in pensions—what do trustees need to do?

In June 2018, the House of Commons published its green finance report aimed at embedding sustainability in financial decision making. In doing so, businesses and regulators must factor long-term environmental risks into financial decision making. The report recommended several ways that the government should do this, including by:


House of Commons Environmental Audit Committee—Greening Finance: embedding sustainability in financial decision making

  • requiring that TCFD reporting should become mandatory on a ‘comply or explain’ basis by 2022 for all large asset owners. To help with this transition, the government should work with the Climate Change Committee to produce policy/scenarios that can be utilised by companies and asset owners. It should be made clear to all financial entities that companies are already required to report on climate change where it is a material risk to business under the Companies Act 2006 (see paras 51–59, 73–79 of the report), and
  • if there is no improvement in the monitoring and management of climate-related risks, the government should pass sustainability reporting legislation similar to that in France under Article 173 of the Energy Transition for Green Growth Act (see paras 102–104 of the report). Article 173 requires organisations with a balance sheet of more than €500m to disclose in their annual reports how they integrate ESG and climate change concerns into their investment policies and risk management. This obligation is implemented on a ‘comply or explain’ basis, providing flexibility to investors in choosing how best to fulfil the criteria under the Act


Act of 17 August 2015 on energy transition for green growth

In September 2018, the TCFD published its 2018 status report providing an overview of the extent to which companies in their 2017 reports included information aligned with the core TCFD recommendations published in June 2017. The TCFD said that, given the limited time which companies had to take on board the June 2017 report, it was encouraging that a majority of those assessed were already disclosing in line with one or more of the TCFD recommendations. For more information, see: LNB News 26/09/2018 93.

The Commission set up the Technical Expert Group (TEG) on Sustainable Finance in July 2018. In January 2019, the TEG published its first report on climate-related disclosures which contained recommendations to allow the Commission to update its non-binding guidelines on non-financial reporting with specific reference to climate-related information, in line with the recommendations of the TCFD, and with the Commission proposal on a ‘taxonomy’ of sustainable economic activities. Stakeholders were invited to submit written comments on the TEG report by 1 February 2019. The report contained proposals for disclosing how climate change might influence the performance of a company and the impact of the company itself on climate change. It contributed to the implementation of the EU Sustainable Finance Action Plan, and follows up on the Commission’s legislative proposal on the disclosure of climate-related information presented in May 2018, which included proposals on disclosure obligations relating to sustainable investments and risks. The TEG published further reports on taxonomy, EU climate benchmarks and benchmarks’ ESG disclosures, and EU green bond standards in June 2019. In March 2020, the TEG published Taxonomy: Final report of the Technical Expert Group on Sustainable Finance and Usability Guide: Green Bond Standard. For more information on the Commission’s legislative proposals on sustainable finance and proposed time scales, see Practice Note: Global and EU sustainable finance initiatives.

On 21 February 2019, the Commission launched a targeted consultation with the aim of finalising new guidelines for company reporting on climate-related information, as part of its Sustainable Finance Action Plan.

In March 2019, the Climate Financial Risk Forum (CFRF), an industry group, was launched jointly by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).

On 26 March 2019, the European Securities and Markets Authority published its response to the consultation, setting out its recommendations on how to further develop the guidelines to promote higher quality disclosures. For more information, see: LNB News 26/03/2019 57.

On 10 May 2019, twenty institutional investors from 11 countries convened by the UNEP FI launched comprehensive investor guidance to help assess how climate change and climate action could impact investor portfolios around the world. These assessments enable investors to be more transparent about their climate-related risks and opportunities in line with the recommendations from the TCFD. They also help investors contribute to and benefit from the transition to low-carbon and climate-resilient economies. For more information, see: LNB News 10/05/2019 84.

On 5 June 2019, the TCFD published its 2019 status report providing an overview of the extent to which companies in their 2017 reports included information aligned with the core TCFD recommendations published in June 2017. The report found encouraging progress on climate-related financial disclosure, but also a need for further progress to consider financial risks. For more information, see: LNB News 05/06/2019 72.

On 18 June 2019, the Commission published new guidelines on corporate climate-related information reporting, following the February 2019 consultation. These guidelines will provide companies with practical recommendations on how to better report the impact that their activities are having on the climate as well as the impact of climate change on their business and supplement the existing guidelines on non-financial reporting that the Commission published in 2017. They are intended for use by companies that fall under Directive 2014/95/EU on disclosure of non-financial and diversity information by certain large undertakings and groups (the Non-Financial Reporting Directive). The guidelines integrate the recommendations of the TCFD and take account of the forthcoming taxonomy on sustainable activities that is under development.

For more information on the Non-Financial Reporting Directive, see Practice Notes: Directive 2014/95/EU on disclosure of non-financial and diversity information—snapshot and Mandatory environmental reporting.

The government’s Green Finance Strategy, launched on 2 July 2019, set out an expectation that all listed companies and large asset owners disclose how climate change impacts their work in accordance with the TCFD recommendations by 2022. The government said that it would work with regulators to explore the most effective way of doing this, including whether mandatory disclosure is necessary. For more information on the Green Finance Strategy, see News Analysis: A conversation on the Green Finance Strategy.

In August 2019, Morgan Stanley Capital International issued a guide aimed at assisting investors who intend to report on their climate-related risk management processes according to the TCFD recommendations. See: LNB News 01/10/2019 34.

On 24 September 2019, the Corporate Reporting Dialogue, an initiative which brings together major global reporting frameworks, published a report: Driving alignment in climate—related reporting, which reviewed the participants’ standards and frameworks against the TCFD’s recommendations. The report shows a high level of alignment between major global reporting frameworks and TCFD recommendations. For more information, see: LNB News 01/10/2019 38.

On 16 October 2019, the FCA published a feedback statement (FS19/6) setting out its proposals to improve climate change disclosures by issuers, regulated firms’ integration of climate change risk and opportunities into their decision-making, and consumers’ access to green financial products and services. The feedback statement summarises the responses the FCA received from stakeholders to its discussion paper DP18/8 and set out the FCA’s proposed actions and next steps. Proposals included an intention in early 2020 to publish a consultation paper proposing new disclosure rules for certain issuers aligned with recommendations on a 'comply or explain' basis from the TCFD and clarifying existing disclosure obligations relating to climate change risks. In addition the FCA stated that it intended to finalise proposed rule changes requiring independent governance committees to oversee and report on firms’ ESG and stewardship policies by the end of 2019. For more information on the FCA’s proposals, see: LNB News 16/10/2019 34.

On 22 October 2019, the Financial Reporting Council’s (FRC) Reporting Lab released a report, Climate-related corporate reporting, which highlighted the gap between current company reporting and the disclosure expectations of investors. In the report, the FRC Reporting Lab also provides practical guidance for companies on how to improve their reporting and outlines what information investors want from climate change disclosures. Such information includes how company boards consider and assess climate change and what scenarios might affect company sustainability and viability. For more information, see: LNB News 22/10/2019 37.

In January 2020, the Investment Association (IA) published a report outlining its members’ priorities for 2020 and highlighted climate change as one of the areas of focus for 2020. The IA supports the recommendation in the Green Finance Strategy that all listed companies should disclose in line with the TCFD recommendations by 2022. To support the IA’s members engagement with companies on climate change, its research arm, Institutional Voting Information Service (IVIS) will introduce a new section to its ESG report, highlighting to investors whether the company has made climate change-related disclosures. For more information, see News Analysis: Analysing the Investment Association’s report on shareholder priorities for 2020.

In February 2020, the TCFD announced that it had officially reached more than 1,000 supporters globally for its recommendations, ‘signifying a major shift among market participants in acknowledging that climate change presents a financial risk’. See: LNB News 13/02/2020 46.

On 20 February 2020, the FRC announced that it was to review how companies and auditors assess and report on their response to the impact of climate change on business operations and how this information is disclosed. This review will include an analysis of reporting quality and how it can be improved so as to better inform investors and other stakeholders on their decisions in this regard. The FRC also stated that it intended to consider how investors address climate change risks to their investments and their responses to systemic and market risks when it monitored the first reports under the new Stewardship Code, which was to be released at the start of 2021. For more information, see: LNB News 20/02/2020 50.

On 28 February 2020, the International Association of Insurance Supervisors and the Sustainable Insurance Forum published a paper on the implementation of the recommendations of the TCFD, in which they called for action on strengthening such disclosures. While acknowledging the diversity of supervisory frameworks across jurisdictions, the paper identifies a number of areas where supervisors can encourage strengthened disclosures through the application of existing supervisory tools. For more information, see: LNB News 28/02/2020 70.

On 6 March 2020, the FCA published consultation paper (CP20/3): Proposals to enhance climate-related disclosures by listed issuers and clarification of existing disclosure obligations. In line with its proposed intentions in the FS19/6 feedback statement, the consultation proposed new rules which would require all commercial companies with a premium listing to either make climate-related disclosures consistent with the approach set out by the TCFD or to explain their non-disclosure. The FCA said that it would consider consulting on extending this rule to a wider scope of issuers and that it is also seeking feedback on clarifications to existing requirements applicable to all listed companies regarding climate and other sustainability-related disclosure. For more information on the FCA’s proposals, see: LNB News 06/03/2020 42. For comments on the proposals from the Climate Disclosure Standards Board, see: LNB News 19/08/2020 32.

In May 2020, the Climate Disclosure Standards Board and the CDP (formerly the Carbon Disclosure Project) published Building blocks: Connecting CDP data with the CDSB Framework to successfully fulfil the TCFD Recommendations. The guidance aims to help companies implement TCFD recommendations in a reliable and investor-useful manner in mainstream reports. Every TCFD recommendation is linked to the most relevant CDP climate change questions and CDSB’s reporting principles and requirements.

In June 2020, the CFRF published a guide written by industry for industry to help firms approach and address climate-related financial risks. The guide, the first of its kind, provides practical recommendations to firms of all sizes on disclosure of climate-related financial risks; effective risk management; scenario analysis, and opportunities for innovation in the interest of consumers. For more information, see: LNB News 29/06/2020 57.

In August 2020, the Department for Work and Pensions (DWP) published a consultation seeking views on policy proposals to require trustees of larger occupational pension schemes and authorised schemes to have effective governance, strategy, risk management and accompanying metrics for the assessment and management of climate risks and opportunities, including proposals for these to be disclosed in line with the recommendations of the TCFD. See News Analysis: Assessing the impact of the DWP’s consultation proposals to tackle risk of climate change on pension schemes. On 27 January 2021, DWP published the response and further consultation. The response confirmed that the DWP will proceed with original policy proposals, subject to some changes. Under the plans, the 100 largest occupational pension schemes—those with £5bn or more in assets, and including all authorised master trusts—will be required to publish climate risk disclosures by the end of 2022. Using these largest schemes to set an industry standard, around 250 more schemes with £1bn in assets would then have to meet the same requirements in 2023. The additional consultation is on draft statutory guidance and draft legislation that would enact the policy proposals put forward by the government with effect from 1 October 2021 and closed on 10 March 2021. For more information, see: LNB News 27/01/2021 81 and News Analysis: DWP’s consultation response and further consultation on addressing climate change governance and risk management in occupational pension schemes—trustees under fire? For more information, see Practice Note: ESG issues in pensions—the TCFD regime from 1 October 2021.

On 2 October 2020, the government published correspondence setting out the FCA’s arrangements for asset managers and personal pension schemes to report on climate change risks. The correspondence states that the FCA intends to discuss implementing client-focused TCFD-aligned disclosures for asset managers and contract-based pension schemes in early 2021. For more information, see: LNB News 02/10/2020 90.

On 29 October 2020, the TCFD published its 2020 status report. The report reviewed 1,700 companies’ reports in relation to disclosure of climate-related financial information. It found that the amount of reports which aligned with the TCFD recommendations had steadily increased since 2017, when the recommendations were first published. For more information, see: LNB News 29/10/2020 47.

Alongside the status report the TCFD also issued two guidance documents to support companies’ implementation efforts:

The TCFD also launched a consultation on forward-looking financial sector metrics to be disclosed by institutions. The consultation asks questions on the usefulness and challenges of climate-related metrics and necessary steps to enhance their comparability, transparency, and rigor and closed on 27 January 2021. For more information, see: LNB News 29/10/2020 47.

On 9 November 2020, the government and UK regulators published their joint interim report and Roadmap detailing the UK’s approach to implementing the recommendations of the TCFD. The government is aiming to introduce fully mandatory climate-related financial disclosure requirements across the economy by 2025, with significant mandatory requirements in place by 2023.

The Roadmap sets out a strategy for seven categories of organisation: listed commercial companies, UK-registered large private companies, banks and building societies, insurance companies, asset managers, life insurers and FCA-regulated pension schemes and occupational pension schemes. Consultations for TCFD-aligned disclosures have already been published for some areas. The report and Roadmap confirm timings for implementation for these organisations. The report covers the reasons for mandatory TCFD aligned disclosures, the path towards mandatory TCFD-aligned disclosures, key considerations in developing the Roadmap and next steps.

It was proposed that there would be consultation on new requirements in the CA 2006 in early 2021, with regulations coming into force in 2022 (this consultation opened on 24 March 2021—see below). There would also be consultation in the first half of 2021 on potential TCFD-aligned disclosure rules for clients and end investors for UK-authorised asset managers, life insurers and FCA-regulated pension providers. For more information on the proposals, see Practice Note: Climate-related disclosures for UK financial institutions—new UK mandatory requirements.

On 10 November 2020, the FRC issued a statement on non-financial reporting frameworks. It is encouraging UK public interest entities to voluntarily reports against the TCFD 11 recommended disclosures, using the Sustainability Accounting Standards Board (SASB) metrics. FRC confirms that it will considers how best to help companies to achieve reporting under TCFD and SASB before global standards on non-financial reporting are introduced. For more information, see: LNB News 10/11/2020 61.

Also on 10 November 2020, the FCA confirmed that, following its consultation paper in March 2020 (CP20/3), it is introducing a new rule in the Listing Rules to require premium-listed issuers to make better disclosures about how climate change is affecting their business, consistent with the recommendations of the TCFD. The FCA will consult in the first half of 2021 on extending the scope of this rule to a wider scope of listed issuers. In the first half of 2021 the FCA will release proposed TCFD implementation measures for asset managers, life insurers and FCA-regulated pension providers. The FCA will aim to bring in rules for the largest firms by 2022. It was acknowledged that the TCFD’s recommendations in the UK must be complemented by more detailed climate and sustainability reporting standards that promote consistency and comparability. The FCA therefore intends to co-chair a workstream on disclosures under IOSCO’s Sustainable Finance Task Force to drive international progress in this area.

On 21 December 2020, the FCA published policy statement PS20/17, which summarises the feedback the FCA received to its consultation paper CP20/3 and confirms its final policy position. Companies will be required to include a statement in their annual financial report which sets out whether their disclosures are consistent with the recommendations of the TCFD, and to explain if they have not done so. The rule will apply for accounting periods beginning on or after 1 January 2021, meaning the first annual financial reports subject to the rule would then be published in spring 2022. The FCA aims to publish further consultation papers to extend the application of TCFD disclosures in early 2021. For more information, see: LNB News 21/12/2020 43.

In January 2021, the IA published a report outlining its members’ priorities for 2021 and has highlighted responding to climate change as one of the areas of focus for 2021. The report comments on progress in TCFD disclosures but found that the quality of disclosures could be improved. Further recommendations for reporting on climate change are made. For more information, see News Analysis: Analysing the Investment Association’s report on shareholder priorities for 2021.

On 24 March 2021, the Department for Business, Energy & Industrial Strategy (BEIS) published a consultation, seeking views on proposals to make it mandatory for public quoted companies, large private companies and LLPs to make climate-related disclosures in line with the TCFD framework. The proposals build on the expectation set out in the government’s 2019 Green Finance Strategy, that all listed companies and large asset owners should disclose in line with the TCFD recommendations by 2022. The consultation closed on 5 May 2021. For more information, including which entities will be covered by the proposals, details of the proposed disclosure framework, where the disclosures will appear and timing, see News Analysis: Proposals to require mandatory climate-related disclosures by quoted companies, large private companies and LLPs.

On 26 April 2021, the FCA published new webpages on climate-related reporting requirements setting out the TCFD-aligned reporting requirements, which companies and firms fall in the scope of the rules, and the FCA’s plans for extending the requirements and on climate change and sustainable finance, including information on the TCFD.

The Pension Schemes Act 2021 (PSA 2021) sets out a broad framework for the government to impose new duties on pension scheme trustees concerning climate change. Following consultation, the Department for Work and Pensions (DWP) has published more details around how the new climate change requirements in PSA 2021 will operate, including draft regulations and statutory guidance.The Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021, SI 2021/839 and the Occupational Pension Schemes (Climate Change Governance and Reporting) (Miscellaneous Provisions and Amendments) Regulations 2021, SI 2021/857 are in force from 1 October 2021. For more information, see Practice Note: ESG issues in pensions—the TCFD regime from 1 October 2021, LNB News 08/06/2021 58, LNB News 09/06/2021 34 and LNB News 19/07/2021 30.

The TCFD has launched a public consultation: 7 June–7 July 2021 on its proposed guidance on climate-related metrics, targets and transition plans and the associated measuring portfolio alignment: technical supplement. For more information, see: LNB News 08/06/2021 52.

In June 2021, the FCA published two consultation papers: CP21/18 on enhancing climate-related disclosures by standard listed companies and CP21/17 on enhancing climate-related disclosures by asset managers, life insurers and FCA-regulated pension providers. The FCA is proposing to:

  • extend the application of its TCFD-aligned Listing Rule for premium-listed commercial companies to issuers of standard listed equity shares (CP21/18) and
  • introduce TCFD-aligned disclosure requirements for asset managers, life insurers and FCA-regulated pension providers, with a focus on the information needs of clients and consumers (CP21/17)

For more information, see News Analysis: Climate-related disclosures for the UK asset management industry—the FCA consults on TCFD-compliant measures.

In July 2021, the FSB published a report on promoting climate-related disclosures. For more information, see: LNB News 07/07/2021 71.

For more information on the TCFD and its recommendations and EU sustainable finance, see Practice Notes: Global and EU sustainable finance initiatives and Sustainable finance—recent news.

Climate Disclosure Standards Board framework

The Climate Disclosure Standards Board has issued an updated Framework for reporting environmental information, natural capital and associated business impacts, which is now aligned with the recommendations of the TCFD.

On 5 December 2019, it launched a framework consultation to advance the disclosure of nature-related financial information in the mainstream report and explore the role of the CDSB Framework in this process. The consultation closed on 28 February 2020.

Financial impact of climate change

In 2017, the Bank of England (Bank) issued a report on climate change’s risk to the banking sector. The Bank has said that climate change and society’s responses to it, present financial risks which impact upon the Bank’s objectives. The risks arise through two primary channels: the physical effects of climate change and the impact of changes associated with the transition to a lower-carbon economy.

The Bank’s response has two core elements. First, engaging with firms which face current climate-related risks, such as segments of the insurance industry. Second, enhancing the resilience of the UK financial system by supporting an orderly market transition.

The Bank states that forming a strategic response to the financial risks from climate change helps ensure it can fulfil its mission to maintain monetary and financial stability, both now and for the long term.

For more information, see News Analysis: Bank of England—The Bank’s response to climate change.

Speaking at the Network for Greening Financial Services conference on 17 April 2019, the governor of the Bank, announced the Bank’s decision to disclose how financial risks from climate change are managed across its entire operations. The Bank’s first disclosure on this matter will be published in 2020 as part of the 2019/2020 annual report. The Bank has also published an open letter written by Mr Carney; the governor of Banque de France, François Villeroy de Galhau; and the chair of the Network for Greening the Financial Services, Frank Elderson.

The open letter looks to the catastrophic effects of climate change and notes that 34 central banks and supervisors—representing five continents, joined forces in 2017 to create a coalition of the willing: the Network for Greening the Financial System (NGFS). The NGFS has also published its first comprehensive report, ‘A call for action—climate change as a source of financial risk’.

The Bank’s policy response to financial risks from climate change has undergone significant development. The Bank now expects regulated firms to disclose their approach to managing climate-related financial risks. It also aims to hold itself to high standards to replicate the framework of the TCFD by disclosing how it integrates climate-related financial risks across its balance sheet and processes.

On 26 September 2018, the PRA published a report on the financial risks facing the UK banking sector as a result of climate change. The report identified two risk factors which manifest as increasing credit, market and operational risk:


Transition in thinking: the impact of climate change on the UK banking sector, September 2018

Green Finance Strategy

  • physical risks—arising from climate and weather-related events, potentially resulting in large financial losses and impairing the creditworthiness of borrowers, and
  • transition risks—arising from the process of adjustment towards a low-carbon economy

In April 2019, the PRA published policy statement (PS11/19) and supervisory statement (SS3/19) (Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change), with the purpose of encouraging firms to reflect on their current approach to governance and risk management structures in responding to the financial risks arising from climate change. The SS is informed by the PRA’s report noted above and is intended to complement existing policy material. The desired outcome is to encourage firms to strategically manage the financial risks from climate change, by taking account of current and future risks, and actions required to mitigate those risks. The SS sets out the PRA’s proposed expectations. For more information, see Practice Note: Global and EU sustainable finance initiatives—UK action.


PRA Policy Statement PS11/19

PRA Supervisory Statement SS3/19

In December 2019, the Bank published a discussion paper which sets out its proposed framework for the 2021 biennial exploratory scenario (BES) exercise on the financial risks from climate change. The objective of the BES is to test the resilience of the current business models of the largest banks and insurers to the physical and transition risks associated with different possible climate scenarios, and the financial system’s exposure more broadly to climate-related risk. It will therefore determine the scale of adjustment that will need to be undertaken in the coming decades for the system to remain resilient. Comments were requested by 18 March 2020. For more information, see: LNB News 18/12/2019 29. The BES was published in June 2021 and the results are expected in May 2022, see: LNB News 08/06/2021 41.


Bank of England publishes the key elements of the 2021 Biennial Exploratory Scenario: Financial risks from climate change

In May 2020, NGFS published a Guide for supervisors: integrating climate-related and environmental risks into prudential supervision. The guide is designed to assist prudential supervisors in integrating the financial risks resulting from climate change and environmental degradation into their work, and to allow financial institutions to learn how supervisors are identifying climate-related and environmental risks, as well as how supervisors expect banks and insurers to address these risks. The recommendations of the NGFS are non-binding but aim to contribute to developing an international approach that is as harmonised as possible. For more information, see: LNB News 27/05/2020 86.

In June 2020, the Bank published its climate-related financial disclosure 2020, which sets out it’s approach to managing the risks for climate change across its entire operations. For more information, see: LNB News 18/06/2020 94.

In July 2020, the deputy governor for prudential regulation and CEO of the PRA, sent a letter to CEOs of all PRA-regulated firms, setting out thematic feedback from the PRA’s review of firms’ plans and clarifications of the PRA’s expectations originally set out in SS3/19. The letter also provides observations on good practice, and sets out next steps for implementation. The PRA asked firms to have an implementation plan in place by October 2019 but did not set a date for full implementation. Woods states that the PRA expects firms to have fully embedded their approaches to managing climate-related financial risks by the end of 2021. At this point, firms should be able to demonstrate that the expectations set out in SS3/19 have been implemented and embedded throughout their organisation as fully as possible. For more information, see: LNB News 01/07/2020 115.

In July 2021, the FSB published a Roadmap for addressing climate-related financial risks and a report on availability of data with which to monitor and assess climate-related risks to financial stability. For more information, see: LNB News 07/07/2021 71.

For more information on the financial risks from climate change, see Practice Note: Global and EU sustainable finance initiatives.

Task Force on Climate-related Financial Risks

On 30 April 2020, the Basel Committee on Banking Supervision’s high-level Task Force on Climate-related Financial Risks published a stocktake report on its members' existing regulatory and supervisory initiatives on climate-related financial risks. It found that the majority of Committee members are undertaking a number of regulatory and supervisory initiatives on climate-related financial risks. Although conducted ahead of the coronavirus (COVID-19) pandemic, the Committee said the outbreak highlights the importance of mitigating the risks of events with severe global impacts. For more information, see: LNB News 30/04/2020 104.

Australian case on failure to report climate change risk

In 2017, two shareholders brought a legal case against the Commonwealth Bank of Australia (CBA) on the basis that it was failing to report the risks climate change poses on financial performance. For more information, see: LNB News 09/08/2017 39.

The case was subsequently dropped, as the annual report published by the CBA following bringing of the case included an acknowledgement for the first time from CBA directors that climate change posed a significant risk to CBA’s operations, with a promise to undertake climate change scenario analysis on its business in the upcoming year to assess the risk.

European Central Bank expectations for banks’ governance of climate-related and environmental risks

On 20 May 2020, the European Central Bank (ECB) published a guide for consultation that explains how it expects banks to safely and prudently manage climate-related and environmental risks, and how firms should disclose such risks transparently under the current prudential framework. The ECB wants banks to account for these risks given that they drive existing prudential risk categories and can substantially impact the real economy and banks. Feedback was sought by 25 September 2020. For more information, see: LNB News 20/05/2020 42.

Misleading investors on climate change related risks

The Texan case of ExxonMobil confirms that misleading investors on climate change-related risks poses serious legal risks to companies and their directors. The case arose following the company’s claims that none of its assets were or would become stranded as a result of climate change-related risks and a serious of material misstatements were alleged. The court found that the plaintiffs sufficiently pleaded securities fraud claims. For more information, see News Analysis: Misleading investors on climate change related-risks poses legal risks.

Accurate and full disclosure in line with TCFD recommendations affords companies and their directors with the best protection against legal action and silence could increase exposure to the risk of litigation.

UK companies reported to Financial Reporting Council over failing to report climate change risk

On 26 September 2018, ClientEarth reported four UK companies (EasyJet, Balfour Beatty, Enquest and Bodycote) to the FRC for not outlining the material trends and risks that climate change and transitioning to low carbon present to their businesses. For more information, see: LNB News 26/09/2018 87.

Working group of sovereign wealth funds prioritise climate risks

A working group of six sovereign wealth funds (SWFs) have agreed to only invest in companies that factor climate risks into their strategies, to help meet climate goals of the Paris Agreement. The SWFs, which form the ‘One Planet Sovereign Wealth Fund Working Group’, collectively represent a total of over $3tn USD, and have published a framework outlining principles and objectives for investors to use to make greener investment choices.

The framework is based on three principals, alignment, ownership, and integration, to promote the integration of climate change analysis in the management of large, long-term and diversified asset funds. For more information, see: LNB News 11/07/2018 89.

UN Sustainable Stock Exchanges

The United Nations Sustainable Stock Exchanges initiative has published an action plan to make markets climate resilient and model guidance on climate disclosure. The model guidance aims to help stock exchanges guide issuers on climate-related disclosure, and contains a template guide and diagnostic checklist that stock exchanges can utilise to develop guidance for issuers. The action plan helps exchanges lead a transition to more climate-resilient markets using the various tools available to them.

Reporting on nature-related risk

Taskforce on Nature-related Financial Disclosures

The Taskforce on Nature-related Financial Disclosures (TNFD) was launched in June 2021. The United Nations Environment Programme Finance Initiative, the United Nations Development Programme, the World Wildlife Fund and Global Canopy are the founding partners of the TNFD.

The TNFD, aims to provide financial institutions and businesses with a holistic picture of their environmental risks and opportunities and is committed to creating a framework by 2023 for organisations to report and act on evolving nature-related risks, to support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes. The TNFD’s framework for nature-related risks is intended to complement the climate-related framework established by the TCFD. The aim is that together, the two frameworks will give companies and financial institutions a complete picture of their environmental risks.

The TNFD framework will be tested and refined in 2022 before its launch and dissemination in 2023.

Further information on ESG

For more information on ESG, see Practice Note: Environmental social governance—the investment market.