The FRC's First Thematic Review of Mandatory Climate-Related Financial Disclosures prepared by AIM-Listed and Large Private Companies

These are their key findings:

1. Governance Arrangements

The FRC found that while most companies disclosed governance arrangements for managing climate-related risks and opportunities, there was significant disparity in the quality of reporting.

While companies generally demonstrated some board-level involvement in overseeing climate-related issues, many disclosures failed to explain the roles and responsibilities of senior management or the board in addressing climate risks. Also, only a few choose to use diagrams and cross-references to clarify these roles.

The FRC recommended that companies should provide structured governance disclosures, explicitly detailing board oversight and management accountability. Good practices include using diagrams and linking governance processes to climate strategy and risk management frameworks.

2. Risk Management

The review revealed inconsistencies in how companies described their processes for managing climate-related risks and opportunities. Most companies outlined their risk identification processes but failed to describe their methodologies or integrate climate risk into broader risk management frameworks. Few companies explained how risks are monitored or assessed over time. Also, many reports focused on risks while neglecting potential opportunities for business innovation or growth.

The FRC recommended that companies should explain their approach to assessing and mitigating risks, detailing methods for risk identification, assessment, and monitoring. They also suggested a risk matrix to enhance clarity, outlining likelihoods and financial impacts.

3. Principal Climate-related Risks and Opportunities

Disclosures often lacked balance, with a strong focus on risks and limited discussion of opportunities. Companies identified physical and transitional climate risks, but few linked these to specific time horizons or quantified their potential impacts. Discussions on opportunities, such as shifts to low-carbon products or market advantages, were rare.

The FRC recommended that companies should address both risks and opportunities with specificity, outlining financial and operational implications. Time horizons for material risks and opportunities should be clear, covering short, medium, and long-term impacts.

4. Scenario Analysis and Resilience

The quality of scenario analysis varied widely, with many companies offering only qualitative assessments. Companies rarely explained their assumptions or provided quantitative analyses of how different climate scenarios would affect their business. A significant number failed to describe resilience under key climate scenarios such as 1.5, 2, and 3 degrees.

The FRC recommended that companies should perform detailed, quantitative scenario analyses, explaining key assumptions and potential financial impacts. Resilience assessments must be clear and tied directly to business strategy. 

5. Business Model and Strategy

Companies often failed to clearly link climate-related risks and opportunities to their business models and strategies. While most companies described how climate risks might affect their business model, disclosures were often high-level and lacked specificity. Also, links between strategy and climate impacts were unclear.

The FRC recommended that companies should explicitly explain how climate risks and opportunities influence their business model and inform strategic decisions. This includes discussing how changes in market demand or regulatory requirements impact operations.

6. Targets and Key Performance Indicators (KPIs)

The development of targets and KPIs remains a work in progress for many companies. Only half of the reviewed companies disclosed greenhouse gas (GHG) reduction targets, with even fewer specifying base years or including Scope 3 emissions. Many did not explain how targets aligned with broader climate goals or how progress would be measured.

The FRC recommended that companies set clear, measurable targets which should include base years and provide transparent methods for calculating and tracking KPIs as well as covering Scope 1, 2, and 3 emissions where relevant.

7. Clear and Concise Reporting

The structure and clarity of reporting emerged as a key issue, with many companies producing lengthy, unstructured disclosures often containing generic or immaterial information and obscuring key insights. Furthermore, many companies failed to tailor disclosures to their operations, relying heavily on group-level reporting.

The FRC recommended that companies draft future reports with material information, presented clearly and concisely using tables, diagrams, and summaries to enhance readability and highlight key points.

To conclude, the FRC’s review highlights significant gaps in the quality of climate-related disclosures by AIM-listed and large private companies. While many companies meet basic compliance requirements, there is a clear need for more specific, decision-useful information. Companies should focus on providing structured, entity-specific disclosures that address both risks and opportunities, link climate considerations to business strategy, and incorporate robust scenario analyses. In summary, these are FRC's recommendations for future reporting.

• On Governance: Embed climate risk management into corporate governance frameworks. Clearly define board and management responsibilities for climate oversight, linking these to the company’ s overall strategy.
• On Risk Management: Provide detailed, entity-specific explanations of climate risk assessment and mitigation. Include both risks and opportunities and explain how these are integrated into broader risk management processes.
• On Scenario Analysis: Conduct quantitative scenario analyses with clear assumptions and financial implications. Evaluate resilience under multiple climate scenarios.
• On Business Strategy: Link climate risks and opportunities directly to business strategy and operational changes. Clearly articulate the financial and strategic impacts.
• On Targets and KPIs: Develop and disclose measurable GHG targets covering all relevant emissions scopes. Explain how progress is monitored and link KPIs to broader sustainability goals.
• On Clarity and Structure: Ensure disclosures are concise, well-organised, and specific to the company’s operations. Avoid duplicating parent company information and use visual aids to clarify key points.

By improving reporting quality, companies can better meet stakeholder expectations and address the growing demands of climate change.