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FRC’s Thematic Review of TCFD and Climate Disclosures – Considerations for firms

On 29th July 2022, the FRC released the output of their recent Thematic Review of TCFD and climate disclosures (link here). The report builds upon their 2020 Climate Thematic and focuses on an area of corporate reporting that is fast expanding in scope.

The FRC’s Review analysed the disclosures of a sample of 25 Premium Listed companies across a range of industries but weighted towards those facing greater climate risk. Of the companies reviewed, 60% were in the FTSE 100, 28% in the FTSE 250 and 12% were smaller listed companies.

This blog summarises the FRC’s headline findings and outlines our thoughts on considerations firms should have.

Headline findings from the FRC’s thematic


The FRC notes that significant progress has been made on climate reporting since the release of their 2020 Climate Thematic. However, many of the general areas for improvement identified have remained consistent across the two Thematic reviews. The 2022 Review highlights five key issues where companies can improve:

  1. Granularity and Specificity
    Companies should provide information about risks and opportunities across the company, breaking this down by business, sector, and geography where appropriate.
  2. Balance
    Discussion of climate-related risks and opportunities should be proportionate to their expected size. The FRC also suggests including a discussion of any dependencies on the development of new technologies when explaining the potential of climate-related opportunities.
  3. Interlinkage with other narrative disclosures
    TCFD disclosures should be well integrated with other elements of narrative reporting. For example, the FRC recommends incorporating the results of scenario analysis into the company’s description of overall strategy within the Strategic Report.
  4. Materiality
    The FRC notes that many companies did not provide an explanation of how they had incorporated the TCFD all-sector guidance and supplemental guidance. In addition, where disclosures are not given, a reason for the omission should be included. For instance, if a disclosure has been omitted on the grounds that it is immaterial, the company should provide an explanation of why this disclosure has been deemed to fall below the materiality threshold. If the omission has been made on other grounds, such as lack of robust data available to provide an accurate disclosure, then this should also be stated.
  5. Connectivity between TCFD and financial statements disclosures
    Climate-risks and opportunities identified within TCFD reporting should be properly integrated into the judgements and estimates which feed into the financial statements. Companies should also consider re-evaluating the presentation of their segmental reporting and disaggregated revenue disclosures in response to climate change and transition plans.

TCFD Findings from the FRC Thematic


The key findings for the key pillars of the TCFD recommendations were as follows:

  1. Governance – All companies provided some information about governance of climate-related matters, but fewer provided specific, such as consideration of climate-related performance objectives and the effect of climate on decisions about major capital expenditure, acquisitions, and disposals.
  2. Strategy – Granular information on strategy was sometimes missing, and the level of detail included in scenario analyses was variable, with less than a quarter providing quantitative measures. Some companies’ discussions of risks and opportunities appeared to be disproportionately weighted towards opportunities.
  3. Risk Management – Climate-related matters were usually well-integrated into overall risk management processes, but processes for assessing the priority and materiality of climate-related risks were often not well-explained.
  4. Metrics and Targets – Metrics were focused on Scope 1 and 2 emissions. Fewer companies reported other climate-related risk and opportunity metrics. Historical data and explanation for movements was not always provided, hindering the reader’s understanding of progress against targets.

Other notable points raised in the FRC Thematic


The FRC’s Thematic also highlighted a number of additional considerations of note:

  1. TCFD Compliance – Statements did not always include clear signposting to the location of recommended disclosures and many were unclear as to whether plans outlined for improvements in subsequent years indicated non-compliance in the current year. Market leaders included a detailed explanation of their materiality assessment within the Statement of Compliance.
  2. Financial statements – Best-practice examples of integration of climate-related matters into the financial statements included detailed explanations on how risks had been considered within judgements and estimates, and sensitivity analyses to show the projected effect of movements in key assumptions. In some cases, the prominence given to climate-related opportunities in narrative reporting was not matched in segmental reporting and disaggregated revenue disclosures.
  3. Assurance over metrics - The FRC also notes that companies should clearly explain the level of any assurance given and what it covered. Terms such as ‘verified’ should also be avoided as it may imply a higher level of assurance than has actually been obtained. A similar point is made on membership of climate-related industry groups; companies should be clear that participation in these groups does not necessarily enhance the credibility of their climate disclosures.

Key considerations and conclusions


  • We expect firms to acknowledge and increasingly act on the FRC thematic, reflective of an increase in both voluntary and mandated disclosure, in an environment of greater stakeholder expectation, and increasing regulatory focus.
  • The output of the review provides more clarity on expectations for firms who have taken a more traditional “wait and see” approach to reporting and disclosure in these areas, as examples of best practice do exist.
  • Given the output from the FRC, it is clear that Climate reporting, including the TCFD statement, should now be firmly established as a board level topic. This thematic can help in driving further consistency in reporting and disclosure by firms, many of whom should already be working on the key considerations highlighted by the FRC.