Draft Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2021

Alan Whitehead Excerpts

Wednesday 15th December 2021 General Committees

[Dr Alan Whitehead (Southampton, Test) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Gray. I am afraid that this morning we cannot beat the record for the briefest Committee sitting, but I hope we will get reasonably close, because the Opposition not only have no wish to divide the Committee, but positively welcome the changes proposed.

The draft regulations are particularly welcome because of the importance of what the climate change imperatives facing large companies in the UK mean for the assumptions and practices—for example about the long-term duration of assets in the ground, or fossil fuels—that were previously widespread in the industry. The required disclosures will ensure that companies are clear about the risks in their operating portfolio, particularly the risks of stranded assets. Across the world, as the impact assessment suggests,

“a third of oil reserves, half of gas reserves and 80% of coal reserves should remain unused in order to meet the target of 2 degrees rise above the average global temperature of preindustrial times.”

A number of larger companies have such assets, so it is absolutely right that the risks related to continuation should be set out in their company accounts.

I could give a number of other examples, but for the sake of time I will not go into them. I think we agree that this measure to secure transparency is important for future investors’ consideration of companies. Disclosures in company accounts will be important, as will the level playing field for everybody concerned as a result of the mandatory nature of the changes made. The impact assessment mentions the alternative scenario of voluntary disclosure, but considers that the regime should be mandatory for reasons of a level playing field and because companies might otherwise consider that they would get a first mover disadvantage by disclosing when others do not.

What is not immediately apparent in the draft regulations is what sanction will be in place for companies that do not comply. Because the draft regulations are effectively folded into the Companies Act 2006, I assume that there is some form of sanction under that Act to distinguish the requirement as mandatory. I am sure the Minister agrees that if there were no definitely attached sanction, an arrangement stated to be mandatory would be no different from a voluntary arrangement. I hope that the Minister can assure me that a sanction is attached to these arrangements. It would be very helpful to the Committee if he outlined what that sanction is and how it might be applied.