Environmental Law News Update: Jan 19, 2022

January 19, 2022

In this latest Environmental Law News Update, William Upton QC, Christopher Badger and Natasha Hausdorff consider a new government report on the climate risks facing the UK, the state of England’s rivers and the extension of climate-related disclosure requirements by the FCA.

UK climate risk assessment

One of the leading items on the BBC News on 17 January 2022 was that the government has published its latest report on the climate change risks facing the UK.  The News bulletins highlighted that the likely costs of not taking action to adapt are that economic damage could exceed £1 billion per year by 2050, for any of the eight ‘very high’ risks out of the 61 risks identified.  They include risks to infrastructure networks, that could cascade across sectors; flooding; risks to financial markets; overheating in places of work; and risks associated with climate change overseas.  The number of risks that now fall into this ‘very high’ damage category has risen from the 3 that were identified a decade ago.

It is easy for the need for adaptation to be overshadowed by the great efforts being made to try to reduce and mitigate temperature increases.  But the two are interrelated. We must integrate adaptation action into the mitigation efforts – and successful mitigation should in turn ensure that adaptation remains more achievable.  Nevertheless, it is an unpalatable truth that despite all the efforts still being put into limiting average global warming to +1.5°C (from its current +1.2°C), the evidence from the IPCC shows that we must sensibly plan ahead for warming of +2°C by 2050.  We will also need to bear in mind the possibility of greater increases than that by 2080.  The report also highlights that a small shift in the average climate can lead to major changes in extreme events.

As was discussed in our environmental law conference in December, this UK report has been laid before Parliament as required by the Climate Change Act 2008.  It is the third risk assessment to have been produced since the Act began.  The CCRA is intended to be a spur for policy action, as it will lead to a new version of the National Adaptation Programme (NAP) in 2023.  Whilst there might seems to be a slight lack of urgency to this five-yearly reporting process, it is important that it exists as a statutory duty at all – so that policymakers are starting on common ground. It should also influence current decision making.  The government is also aware of the time delay issue – it has already asked the Climate Change Committee to identify what the priority areas for action are in the next two years, in advance of the next adaptation programme – and these have been endorsed in the CCRA3 report.

A link to the report can be found here

The state of England’s rivers

Last week the Environmental Audit Committee published its Report on Water Quality in Rivers, which began by setting out that obtaining a complete overview of the health of our rivers and the pollution affecting them is hampered by outdated, underfunded and inadequate monitoring regimes. Nevertheless, the report charged that a ‘chemical cocktail’ of sewage, agricultural waste, and plastic is polluting the waters of many of the country’s rivers. Not a single river in England has received a clean bill of health for chemical contamination, and the evidence disturbingly suggests that they are becoming breeding grounds for antimicrobial resistance.

The most recent figures published by the Environment Agency show that only 14% of English rivers met good ecological status and no river met good chemical status. It is also alleged that water companies appear to be dumping untreated or partially treated sewage in rivers on a regular basis, often breaching the terms of permits that on paper only allow them to do this in exceptional circumstances. The requirements of the EU Water Framework Directive, implemented in domestic legislation by the Water Environment (Water Framework Directive) (England and Wales) Regulations 2017 remain in force, though Parliament has now given Ministers the express power to amend these regulations under Section 89 (1) of the Environment Act 2021.

The investigation of these issues was prompted by a private members bill, introduced by the Chair of the Committee the Rt Hon Philip Dunne MP, the Sewage (Inland Waters) Bill, which proposed to place a duty on water companies to ensure that untreated sewage was not discharged into rivers and other inland waters. The Inquiry, however, grew to take in challenges to good water quality emanating also from agricultural pollution and road run off. The Committee has focused primarily on rivers in England, as the regulation of water quality in the UK is largely devolved. It received 105 pieces of written evidence and heard in person from 31 witnesses, including the Parliamentary Under Secretary of State at the Department for Environment, Food and Rural Affairs, Rebecca Pow MP, the chief executives of the Environment Agency, Ofwat and Highways England and the chief executives of five of the water and sewerage companies operating in England.

The Committee has called on National Highways to accelerate its efforts to eliminate toxic chemical and plastic pollution from the most polluting outfalls on the Strategic Roads Network by 2030 and expects to see far more assertive regulation and enforcement from Ofwat and the Environment Agency.

FCA extends climate-related disclosure requirements

The FCA has published two policy statements entitled ‘Enhancing climate-related disclosures by standard listed companies’ and ‘Enhancing climate-related disclosures by asset managers, life insurers and FCA-regulated pension providers’.

Climate-related financial disclosure requirements are being extended. The Government has committed to work towards mandatory TCFD-aligned disclosure obligations across the UK economy by 2025. This is the next step.

Standard listed companies

A new rule, LR 14.3.27R, will apply for accounting periods beginning on or after 1 January 2022. This requires in-scope companies to include a statement in their annual financial report setting out:

  • Whether they have made disclosures consistent with the TCFD’s recommendations and recommended disclosures in their annual financial report;
  • Where they have not made disclosures consistent with some, or all, of the TCFD’s recommendations and/or recommended disclosures, an explanation of why, and a description of any steps they are taking or plan to take to be able to make consistent disclosures in the future, and the timeframe within which they expect to be able to make those disclosures;
  • Where they have included some, or all, of their disclosures against the TCFD’s recommendations and/or recommended disclosures in a document other than their annual financial report, an explanation of why;
  • Where in their annual financial report (or other relevant document) the various disclosures can be found.

Guidance provisions set out by the FCA includes guidance on metrics, targets and transition plans and implementation.

Companies are also encouraged to assess the extent to which it has considered the UK’s net zero commitment in developing and disclosing its transition plan. Where it has not done so, the company is encouraged to explain why. This blog has repeatedly identified that it was likely that the onus to meet net zero would fall on industry, particularly due to the lack of concrete policy commitments from the Government. Here we see evidence of that likelihood in action.

The first annual reports subject to the new rule will be published in early 2023.

Asset managers and other FCA-regulated asset owners

In scope firms are required by new rules to make disclosures on an annual basis at:

  • Entity-level: an annual TCFD entity report published in a prominent place on the main website of the firm’s business setting out how they take climate-related matters into account in managing or administering investments on behalf of clients and consumers;
  • Product-level: disclosures (including a core set of climate-related metrics) on the firm’s products and portfolios made publicly in a prominent place on the main website of the firm’s business and included or cross-referenced in an appropriate client communication, or made upon request to certain eligible institutional clients.

The rules will apply to 34 asset management and 12 asset owner firms in the first phase of implementation from 1 January 2022. Once full implemented they will apply to 140 asset management and 34 asset owner firms, representing £12.1 trillion in assets under management and administered in the UK, 98% of the market.

The first public disclosures in line with the FCA’s requirements must be made by 30 June 2023.

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If you have any comments or suggestions please contact Bridget Tough at bridget.tough@6pumpcourt.co.uk