Corporate Reporting Standards and Requirements

Factsheet: Corporate Reporting Standards and Requirements

Key Takeaways

Rapid increase in the number of corporate reporting standards and requirements aimed at raising transparency and accountability and ultimately improving corporate performance.
Reporting requirements cover, among other things, climate- and nature-related financial disclosures, environmental and social sustainability along the value chain, strategy and stress testing.
Insights and lessons learnt are useful for non-corporates such as local governments as well and could help to better address challenges.

There has recently been a proliferation of corporate reporting standards and requirements in the UK and abroad. These new standards and requirements are aimed at raising transparency and accountability and ultimately corporate performance. This factsheet presents some of the key recent and on-going developments.

Financial reporting

Climate-related financial disclosures

The Task Force on Climate-related Financial Disclosures (TCFD) presented its recommendations in June 2017 with the expectation that jurisdictions globally would adopt them. In 2021 the G7 nations agreed to make the disclosures mandatory, with the UK becoming the first G20 country to adopt them.

Since 2022 most large UK companies and LLPs, including banks, insurers, pension schemes and asset managers and owners report climate-related financial information in their non-financial and sustainability information statement as part of their Strategic Report. Where no Strategic Report is being prepared, the information will need to be disclosed in an Energy and Carbon Report as part of the Annual Report.

Companies and LLPs within scope have to disclose information on climate-related risks and opportunities, where these are financially material. The disclosures need to address how climate change is addressed in corporate governance; how it might impact strategy; how related risks and opportunities are managed; and the performance measures and targets applied in managing these issues.

Nature-related financial disclosures

In September 2023 the Taskforce on Nature-related Financial Disclosures published its recommendations to complement the 2017 climate recommendations. The taskforce has started discussions with jurisdictions on adoption and has stated that the recommendations are suitable for organisations of all sizes, sectors and value chains.

The recommendations set out the suggested disclosure framework and 14 desirable disclosures. They are consistent with the language, structure and approach of both the TCFD and the International Sustainability Standards Board (ISSB) to enable integrated climate- and nature-related reporting.

Of the 14 recommended disclosures three deal with governance; four with strategy; four with risk and impact management; and three with metrics and targets.

Non-financial reporting

Corporate Sustainability Reporting

In January 2023 the EU Corporate Sustainability Reporting Directive (CSRD) entered into force. Companies subject to the CSRD will have to report according to European Sustainability Reporting Standards. These standards take a ‘double materiality’ perspective, in other words companies will need to report on how environmental and social issues might create financial risks and opportunities for the business and how the business might impact on the environment and society

The standards require 12 disclosures on issues such as climate, pollution, water and marine resources, biodiversity, circular economy, own workforce, affected communities and business conduct. The EU Corporate Sustainability Reporting Directive is closely aligned with the ISSB’s International Financial Reporting Standards (IFRS) S1 and S2.

The UK government is currently working on its own corporate sustainability disclosure standards, which should also be closed aligned with (and based on) the IFRS. In July 2023 the UK Financial Reporting Council called for evidence on UK endorsement of IFRS S1 and S2. The UK sustainability standards might come into force in 2025. In January 2024 the UK Financial Reporting Council published its UK Corporate Governance Code 2024, updating the current 2018 code, covering companies with a premium listing on the London Stock Exchange.

Corporate Due Diligence

The EU is also in the process of implementing its Corporate Sustainability Due Diligence Directive (CSDDD). The CSDDD establishes a comprehensive framework for larger companies operating in the EU of corporate due diligence to identify actual or potential risks to human rights and the environment and establish mitigating actions. The rules would apply to the entire (potentially global) upstream and downstream value chain. The directive will come into force this year.

In June 2023 an early motion on “Potential merits of new legislation on mandatory corporate due diligence” was tabled in the House of Commons, pointing out that similar laws were being introduced in other countries and that the UK government should adopt such law as soon as possible. In November 2023 a Bill proposing the Commercial Organisations and Public Authorities Duty (Human Rights and Environment) Act was introduced to the House of Lords.

Strategic Report and Directors’ Report (Amendment) Regulations 2023

The UK Parliament is currently debating the Draft Companies (Strategic Report and Directors’ Report) (Amendment) Regulations 2023. If approved, it would apply to UK companies with at least 750 employees and an annual turnover of at least £750 million and would comprise an annual resilience statement, and annual distributable profits figure and an annual material fraud statement.

In the annual resilience statement companies would be required to explain the steps they are taking to build or maintain their business resilience over the short, medium and long term. This would include a summary of the company’s strategic approach to managing risk and building or maintaining business resilience (including how risk and resilience are considered within the company’s business planning and investment cycle, and within relevant internal governance processes); a description of the main risks; a reverse stress test identifying mitigating actions to deal with potential adverse circumstances; and a summary of long-term trends or factors that could threaten the business model or operations.

Transition Plan

In April 2022 HM Treasury launched the Transition Plan Taskforce to develop “the gold standard for private sector climate transition plans”. In October 2023 the taskforce published its suggested disclosure framework, which is designed to be consistent with and builds on the climate-related disclosure standards (IFRS2) issue by the International Sustainability Standards Board (ISSB) in June 2023

The framework identifies five elements of a good practice transition plan: foundations (strategic ambition of the plan); implementation Strategy (actions taken to achieve its strategic ambition, as well as the resulting implications for its financial position, financial performance, and cash flows); engagement strategy (with regards value chain, industry peers, government, public sector, communities, and civil society); metrics and targets (used to drive and monitor progress towards strategic ambition); and governance (how is transition plan embedded in governance structures and organisational arrangements).

Why does it matter?

Corporate reporting standards and requirements aim to improve transparency and accountability and ultimately help businesses perform better, for example by identifying key risks and developing mitigating actions. Corporate reporting requirements could therefore also provide insights and lessons for non-corporates such as local governments.

If you would like to find out more about the topics discussed in this factsheet and what insights and lessons you could take away from corporate reporting requirements to address the challenges you face, please talk to us.

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