Climate-related financial disclosure: who the UK rules apply to

Climate reporting reaches most small and medium-sized companies sideways: not as a legal requirement, but as a question in a supplier questionnaire, a lender’s information request or a tender. This note sets out which rules apply to whom, why your company is probably outside them, and what a modest, honest response looks like when someone asks anyway.

The regulations, and who is in scope

The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022, and the parallel regulations for LLPs, apply to financial years beginning on or after 6 April 2022. They require in-scope entities to include climate-related financial disclosures in the strategic report (for LLPs, the energy and carbon report), covering governance, risk management, strategy, scenario analysis, metrics and targets. The structure follows the international TCFD framework.

They apply to:

• companies with securities traded on a UK regulated market, banking companies and insurance companies, where they have more than 500 employees;
• companies admitted to AIM with more than 500 employees;
• other companies, and LLPs, with more than 500 employees and turnover of more than £500 million.

Those are the only entry points. There is no route by which a company with forty staff and £6 million of turnover comes into scope, and no plan to create one.

The other regimes worth knowing by name

Three further sets of rules are often confused with the climate regulations, and each has its own size test.

Streamlined Energy and Carbon Reporting (SECR) requires quoted companies, and unquoted companies and LLPs that are large under the Companies Act, to report energy use and greenhouse gas emissions in the directors’ report. Large means exceeding two of the three Companies Act size limits for turnover, balance sheet total and employees.

The Energy Savings Opportunity Scheme (ESOS) requires large undertakings to carry out energy assessments every four years and, since its most recent phase, to publish an action plan.

UK Sustainability Reporting Standards, based on the international ISSB standards, are being developed for listed and large companies, with the FCA and the government deciding where they will be required. There is no proposal to apply them to small companies.

If you are below the large company thresholds, none of these applies to you either. The size test is the first thing we check when a client is told by a customer that they “have to report”.

Why you are being asked anyway

Large companies reporting under those regimes are increasingly measuring scope 3 emissions, which for most of them means their supply chain. So a large customer sends a questionnaire to every supplier. Banks with their own climate commitments ask borrowers for emissions data and sometimes attach it to lending terms. Central government procurement requires a Carbon Reduction Plan from bidders on larger contracts, and many public bodies and main contractors copy that requirement down the chain. Grant funders, insurers and prospective buyers of the business ask for the same thing.

None of these requests carries statutory force. Most carry commercial force, which is what matters when the customer is a third of your turnover.

A proportionate response

For a company outside the regulations, the useful test is whether you could answer a customer’s questionnaire in an afternoon from records you already keep. That usually comes down to four things.

1. Scope 1 and 2 emissions, calculated. Scope 1 is fuel you burn: gas, vehicle fuel, generators. Scope 2 is purchased electricity. Both come straight from supplier invoices and fuel receipts, converted using the government’s published greenhouse gas conversion factors, which are updated each year and are free. If your bookkeeping tags energy and fuel costs to their own nominal codes, this is a report, not a project.
2. A short statement of who is responsible. One paragraph naming the director who owns the topic and how often the board looks at it. For a company of your size, that is the whole of governance.
3. The two or three risks that are real for you, and what you are doing about them. For a warehouse, flood risk and cooling costs. For a haulier, fuel prices and low-emission zones. For a food manufacturer, ingredient supply. Physical risks and transition risks, in plain terms, without scenario modelling.
4. A target you can measure, if you want one, and no target if you cannot. A reduction target with no baseline and no plan is worse than no target. It becomes a claim you have to defend.

That last point matters more since the Competition and Markets Authority gained direct powers to act on misleading green claims. Say what you measure, say what you do not, and do not describe the business as net zero or carbon neutral unless you can show the working.

Where the accounts come in

Nothing above changes your statutory accounts. A small company’s exemptions from the strategic report are unaffected. What changes is what a good ledger can give you. A chart of accounts with energy, fuel and travel separated by site or division. Departmental reporting that shows which site drives the consumption. Management accounts that carry a kilowatt-hour line next to the cost line, so the trend is visible before the questionnaire arrives. And a funding pack that already contains the figures a lender’s climate questions ask for.

What we will not do

We will not produce a TCFD-style report for a company that is not required to have one, and we will not sign a statement about your emissions that we have not seen the source data for. We will help you build the data, keep it in the ledger where it can be reconciled, and present it honestly. If a customer’s questionnaire asks for more than that, the right answer is usually a short explanation of what you can and cannot yet measure. Most procurement teams accept it.

If you have been sent a questionnaire, a tender or a lending condition that asks for climate information, we offer a 30-minute call at no charge to work out what is actually being asked and what you already have.