The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 ("the 2022 Regulations") comes into force on 6 April 2022 and makes important amendments to sections 414CA and 414CB of the Companies Act 2006 ("the 2006 Act"). These sections relate to the requirement for certain entities to include a non-financial and, from 6 April, sustainability information statement in strategic reports.

Who do the requirements apply to?

In short, the requirement applies to the following entities:

  • a traded company,
  • a banking company,
  • an authorised insurance company,
  • a company carrying on insurance market activity,
  • a company any securities of which are admitted to trading on the market known as the Alternative Investment Market, and
  • a high turnover company in relation to that financial year.

A "high turnover company" is defined as being a company, which is not a parent, with turnover in excess of £500m in the relevant financial year. Where the company is a parent at any time during the financial year, it is considered to be a "high turnover company" where the aggregate group turnover is more than £500m net. There is guidance on establishing aggregate turnover within the newly added section 414CA(2C).

Who do the requirements not apply to?

The requirements do not apply to companies subject to the small companies regime, or companies qualifying as medium-sized. It also does not apply where the company has no more than 500 employees. Where the company is a parent company, the requirements do not apply where the aggregate number of employees across the group is no more than 500. Subsidiary companies that form part of a group strategic report submitted by a parent undertaking do not need to report separately.

What must the non-financial and sustainability information statement contain?

The non-financial and sustainability information sheet must include information "to the extent necessary for an understanding of the company's development, performance and position and the impact of its activity." As a minimum, information must be provided in relation to:

  • Environmental matters;
  • Employees;
  • Social matters;
  • Respect for human rights; and
  • Anti-corruption and anti-bribery matters.

Section 414CB(2) of the 2006 Act states that the above information should include "a description of the company's business model" and its policies, as well as any due diligence processes. There should also be detail on "the outcome of those policies" and on the relevant principal risks arising from the company's operations. A company should provide information on "the non-financial key performance indicators relevant to the company's business."

Crucially, the information statement must also contain the climate-related financial disclosures of the company.

What are climate-related financial disclosures?

The newly added section 414CB(2A) of the 2006 Act states that climate-related financial disclosures must include, amongst other things, a description of the company’s governance arrangements in relation to assessing and managing climate-related risks and opportunities, and how that is integrated into the company’s overall risk management process.

In addition, the company must set out its targets in relation to managing climate-related risks, and how it intends to realise climate-related opportunities and perform against those targets. Progress should be measured against key performance indicators.

If you have any questions regarding the application of the 2022 Regulations to your business, or how to comply with their terms, please do get in touch with our Corporate Crime & Investigations team, or your usual Brodies contact.