The Financial Reporting Council (FRC) in the UK has recently completed its first thematic review, which evaluates the climate-related financial disclosures of AIM-listed companies and large private firms. This review is especially significant as it represents the first round of mandatory climate reporting, introduced under new regulations last year. For this assessment, the FRC scrutinized the annual reports and financial statements of 20 companies subject to these updated disclosure requirements.
The primary aim of the FRC’s review was to determine whether companies were fully compliant with the newly mandated climate-related disclosure rules. However, the findings highlighted a mixed performance. While many companies made attempts to adhere to the new regulations, the overall quality of the climate-related reporting was inconsistent. The review identified several areas where substantial improvement is needed, especially concerning the clarity of climate-related targets and the measurement of progress toward achieving these goals.
A key issue raised by the FRC was the lack of specific and detailed climate-related targets from many businesses. While most companies included climate-related goals, these objectives were often vague and lacked clear metrics or timelines to measure progress. The absence of concrete and measurable targets makes it difficult for external stakeholders—such as investors, regulators, and the public—to assess whether companies are genuinely committed to addressing climate change or merely making surface-level claims. This lack of clarity raises concerns about the companies’ true dedication to sustainability and the credibility of their climate actions.
Another significant finding was the insufficient information provided about the systems and methodologies companies use to track their climate progress. Transparency in how businesses measure and report their climate impact is essential for stakeholders to make informed decisions. Without a clear understanding of the tools, processes, and metrics used to assess performance, the data provided becomes less reliable and actionable. This transparency gap limits the ability of investors and other stakeholders to gauge the effectiveness of the climate actions companies are taking and to hold them accountable for their commitments.
In addition to unclear goals and lack of transparency in measurement, many companies focused primarily on stating their climate-related intentions without adequately detailing the steps they would take to achieve them. While setting goals is an essential first step, businesses must also outline concrete actions and strategies for achieving these objectives. Without a clear roadmap for implementation, it becomes difficult for stakeholders to evaluate whether companies are genuinely committed to meeting their climate goals or if they are simply engaging in greenwashing. To build credibility, companies must not only demonstrate ambition but also showcase the actions they will take to ensure those ambitions are realized.
Looking ahead, the FRC has emphasized the need for improved quality and consistency in climate-related disclosures. As regulatory standards evolve, companies will increasingly be expected to align their reports with internationally recognized frameworks. This alignment will ensure that climate-related data is not only consistent and reliable but also actionable for stakeholders who rely on accurate and timely information for decision-making.
The FRC’s thematic review marks a crucial step in the UK’s efforts to improve climate-related transparency. It serves as an important reminder for businesses to refine their climate disclosures, ensuring they are clear, comprehensive, and actionable. By enhancing the quality of these disclosures, companies can foster greater trust with stakeholders, strengthen their commitment to sustainability, and contribute to the global transition toward a low-carbon economy.
