n April 2019, the Prudential Regulatory Authority (PRA) of the Bank of England issued an influential Supervisory Statement on the disclosure of climate-related risks by financial institutions. The statement asks firms to take a comprehensive and strategic approach to climate-related risks, encompassing governance, risk management and disclosure elements. According to the PRA, firms should not only adopt this approach in the UK but also "recognise the increasing possibility that disclosure will be mandated in more jurisdictions, and prepare accordingly." More recently, the UK has announced its intention to implement the recommendations of the Task Force on Climate-Related Disclosures (TCFD) across the economy by 2025, with a significant portion of mandatory climate-related disclosure requirements in place by 2023. In November 2020, the UK published a regulatory roadmap setting out an indicative pathway to achieving this ambition, followed by a comprehensive consultation on a broadly applicable climate disclosure regime in March 2021.

The Hong Kong Monetary Authority (HKMA) has also been making significant strides from an Asian perspective. In June 2020, the regulator issued its own preliminary approach to the supervision of climate-related risks, including risk management, integration and disclosure aspects. The HKMA asks regulated institutions to "keep abreast of evolving disclosure requirements, both globally and locally, in light of increasing attention on climate-related issues." Following the UK's announcement on implementing the TCFD Recommendations by 2025, the HKMA and a group of six other Hong Kong agencies also committed to implement mandatory TCFD-aligned climate-related disclosures by 2025.

In North America, the Biden administration and the Securities and Exchange Commission (SEC) are making climate change a signature priority for the US federal government. In February 2021, the SEC announced an enhanced focus on climate-related disclosures in public company filings, recognising that "[n]ow more than ever, investors are considering climate-related issues when making their investment decisions." In May 2021, President Biden issued a wide-ranging Executive Order requiring federal regulators to assess, among other things, "the necessity of any actions to enhance climate-related disclosures by regulated entities to mitigate climate-related financial risk to the financial system". At the state level, in October 2020, the New York State Department of Financial Services asked regulated institutions to "start developing their approach to climate-related financial risk disclosure" and "engage with established initiatives when doing so".

These statements from regulators in each of the world's most important financial centres illustrate the pressing need for all businesses to consider their approach to climate-related disclosure and risk management in the near term. We have developed this guide to help businesses understand and respond to the approaches that regulators are taking as regimes continue to develop and evolve at a rapid pace. This guide will compare and contrast these sometimes divergent, but often similar, approaches to the growing threat of climate change across two main categories: "straightforward" climate-related "disclosure only" regimes and more "comprehensive" climate risk management regimes.

Disclosure Only

Relatively "straightforward" climate-related disclosure regimes have existed for some time. These regimes vary in scope and legally binding nature but share the following commonalities:

At a minimum, large, listed companies are required to make climate-related disclosures focused on emissions metrics in their annual reports.

Reporting entities are often suggested or required to refer to the GHG Protocol in determining Scope 1, Scope 2 and Scope 3 emissions.

Audit requirements are less common, but regulators often encourage reporting entities to seek external audits.

Standalone sanctions regimes are less common, but reporting entities may be sanctioned under more broadly applicable sanctions regimes (e.g., a stock exchange's listing rules).

In general, these regimes require gathering information about emissions and reporting on them, as well as setting targets for improvements, but do not go further than this. There are, however, some interesting divergences that indicate how difficult it is for market participants with international footprints to generate a consistent global approach. For example, the SGX Listing Rules in Singapore generally give issuers a degree of flexibility in determining which disclosures to make, while the UK's SECR includes more specific emissions disclosure requirements. For an international organisation comprising entities subject to both of these regimes, applying the same approach in each jurisdiction might be undesirable from a compliance perspective, on the one hand, and a cost perspective on the other.

In this section, we highlight a selection of existing and proposed "disclosure only" regimes in the United Kingdom, Singapore and Hong Kong, as well as the European Union, and outline key features of the GHG Protocol that underlies many of these regimes.

GHG Protocol overview

The GHG Protocol Corporate and Accounting Reporting Standard is a leading international methodology that provides standards and guidance for companies and other organisations preparing a corporate-level GHG emissions inventory. Indeed, many "disclosure only" regimes (e.g., the UK's SECR) specifically refer to the GHG Protocol for various purposes, including to define Scope 1, Scope 2 and Scope 3 GHG emissions. Please refer to the chart overleaf for more detail on Scope 1, Scope 2 and Scope 3 GHG emissions.

In practice, reporting entities might refer to the GHG Protocol's practical instructions to identify and calculate GHG emissions in determining the scope and quantum of their emissions. The reporting entity might then report such information pursuant to an applicable disclosure regime (whether or not the regime specifically refers to the GHG Protocol). The following table summarises key components of the GHG Protocol.

Covered Entities

Information Disclosed

Compliance Obligation

Audit Requirement

Sanctions
  • Any entity (mainly corporates) seeking to:
    • Prepare a GHG inventory that represents a true and fair account of their emissions
    • Report publically
    • Simplify and reduce the costs of compiling a GHG inventory
    • Build an effective strategy to manage and reduce GHG emissions
    • Participate in voluntary and mandatory GHG programs
    • Account and report on GHG emissions consistently and transparently
    • Manage GHG risks and identify reduction opportunities
    • Participate in mandatory reporting programs
    • Participate in GHG markets
    • Gain recognition for early voluntary action
  • Can be used in conjunction with other mandatory or voluntary regimes
  • Sets out how to determine matters for reporting, such as:
    • How to determine an organisational boundary
    • Approaches to affiliates, JVs and partnerships
    • Approaches to franchises and leases
    • Distinguishing between Scope 1, Scope 2 and Scope 3 emissions
    • Determining operational boundaries
    • Avoiding double counting
    • Choosing base years
    • Reference years
    • Identifying emissions sources
    • Dealing with estimates and uncertainties
    • How to report
  • The Standard is a tool for meeting compliance obligations or for reporting on a voluntary basis, rather than setting out a compliance obligation
  • Verification is often undertaken by an independent, external third party
  • Many companies may subject their information to internal verification
  • Both internal and external verification should follow similar procedures and processes
  • For external stakeholders, external third party verification is likely to significantly increase the credibility of the GHG inventory
  • Independent internal verifications can also provide valuable assurance over the reliability of information
  • Not applicable, but note that regulation referring to the GHG Protocol may apply specific sanctions regimes

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