Another short bulletin this month with only two issues of note.
Firstly, the Taskforce on Nature-related Financial Disclosures has published its recommended disclosure framework.
Secondly the Financial Reporting Council has issued its annual review of Corporate Reporting and its expectations for Corporate Reporting in 2023/24.
Thera Prins
CEO - UK Shareholder Services
Taskforce on Nature-related Financial Disclosures
The Taskforce on Nature-related Financial Disclosures (TNFD) has published the final version of its recommended disclosure framework. Additionally a suite of guidance and glossary of terms has also been published. There are fourteen TNFD Recommendations designed to provide guidance for organisations to report on nature-related financial risks and opportunities, to support a shift in global financial flows away from nature-negative outcomes and towards nature-positive outcomes.
The Recommendations are designed for organisations of all sizes, across all sectors and along value chains. The TNFD Recommendations are grouped into the same four pillars as the Taskforce for Climate-related Financial Disclosures (TCFD), namely:
Governance - three recommendations to disclose an organisation’s governance of nature-related dependencies, impacts, risks and opportunities including a description of the boards oversight of nature related dependencies, impacts, risks and opportunities.
Strategy - four recommendations to disclose the effects of nature-related dependencies, impacts, risks and opportunities on an organisation’s business model, strategy and financial planning where this is material.
Risk and impact management - four recommendations designed to describe the processes used by an organisation to identify, assess, prioritise and monitor nature-related dependencies, impacts, risks and opportunities.
Metrics and targets - three recommendations to disclose the metrics and targets used to assess and manage material nature-related dependencies, impacts, risks and opportunities.
The Recommendations are also consistent with the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI) reporting standards. Like the TCFD, the TNFD will track voluntary market adoption on an annual basis through an annual report beginning in 2024.
Full details can be found at: Recommendations_of_the_Taskforce_on_Nature-related_Financial_Disclosures_September_2023.pdf (tnfd.global)
Financial Reporting Council – Annual Review of Corporate Reporting
The Financial Reporting Council (FRC) has published its annual review of Corporate Reporting based on a review of 263 annual reports conducted during the year ended 31 March 2023. The Review identified the top 10 issues that resulted in substantive questions being asked of companies. The number 1 issue (up from 9 last year) related to the impairment of assets. Questions relating to the Strategic Report and other Companies Act 2006 matters remained at number 4.
The FRC extended its monitoring work to include reviews of directors’ remuneration reporting for a selection of ten companies. As a result, the FRC wrote to nine of those companies on matters mostly relating to the clarity of these targets and performance against them. In relation to climate-related reporting, the Review disclosed that companies are at very different stages of maturity. As reporting practices become more established, it is more likely the FRC will enter into substantive correspondence with companies where their disclosures do not meet requirements for the Taskforce for Climate-related Financial Disclosures (TCFD) reporting.
For 2023/24 the FRC expects companies to:
Ensure disclosures about uncertainty are sufficient to meet requirements and for users to understand the positions taken in the financial statements.
Provide a clear description in the strategic report of risks facing the business, their impact on strategy, business model, going concern and viability, cross-referenced to relevant detail in the report and accounts.
Provide transparent disclosure of the nature and extent of material risks arising from financial instruments.
Provide a clear statement of consistency with TCFD which explains whether management considers they have given sufficient information to comply with the framework in the current year.
Perform a sufficient critical review of the annual report and accounts.
The FRC also expects companies to consider how current economic conditions may impact on financial and narrative reporting in 2023/2024.
The report can be found here: Annual Review of Corporate Reporting (frc.org.uk)
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