What Environmental Disclosure Obligations Does My Company Owe in England?

The business world is increasingly prioritising environmental, social, and governance issues (ESG). The law in England is also taking steps to formalise certain requirements and obligations related to ESG that certain private companies must comply with presently and in the future. Notably, this is a rapidly moving area of the law, and company directors are responsible for ensuring their company complies with the developments. This article explores whether your company must comply with certain climate-related disclosure laws and your environmental disclosure obligations. 

Environmental Disclosure Obligations

Currently, only large companies in the country have legal obligations to make certain environmental disclosures. However, this will likely change as the laws related to corporate governance disclosures evolve. 

Your business may benefit from implementing internal policies that resemble the legal obligations the law places on large companies. ESG issues, especially those related to the environment, are more than just talking points. The extent to which your company impacts the environment can have material effects on your ability to grow, such as by onboarding new customers and obtaining bank loans. 

Environmental Issues and Company Law 

We can divide environmental laws which affect private companies into two categories:

1. environmental regulations, which tell companies which actions they can and cannot take based on their impact on the environment; and 
2. environmental disclosure laws, which impose obligations on companies to disclose their impact on the environment. 

Environmental regulations include laws forbidding your company from dumping its waste into the river. On the other hand, a law requiring you to disclose your company’s carbon emissions in your annual report is an example of an environmental disclosure law. 

Determining if environmental regulations apply to your company depends on the kind of business your company runs. Conversely, environmental disclosure laws apply to all companies of a sufficient size, regardless of their industry. 

Corporate Governance Disclosures 

By law, all private companies must prepare and file their annual accounts, which are available to the public to inspect. The reason is that key stakeholders such as trade suppliers and lenders can understand a company’s finances and determine if they want to do business with them. In other words, the public can inspect a company’s accounts and determine the company’s profitability. 

Notably, the scope of corporate governance disclosures is expanding to more than just an account of a company’s profits. For example, a large element of corporate governance disclosures is the requirement that companies publish an evaluation of how their activities impact the environment. 

You should include these disclosures in your company’s strategic report, which forms part of its annual report. Others may refer to the strategic report as “non-financial disclosures” or “narrative reporting”. 

Company Directors’ Responsibilities 

As a general rule of company law, company directors are responsible for ensuring their company complies with all applicable laws. Therefore, if your company must comply with environmental disclosure laws, as a director, this responsibility falls onto you.

You can face criminal and civil liability if you do not comply with your obligations. 

Threshold for Disclosure 

If your company is a private company, you will need to make certain corporate governance disclosures, including those related to its impact on the environment, if:

• your company employs more than 2,000 people; or
• your annual turnover (revenue) is £200m or more, and your balance sheet total is £2bn.

In practice, this only applies to the largest private companies in the country. 

Similarly, if your company qualifies as a small company under company law, you will also be exempt from including a strategic report in your annual report. With few exceptions, a small company is any company with:

• a turnover of less than £10.2m; 
• a balance sheet total of less than £5.1m; and 
• no more than 50 employees. 

However, your company may still benefit from adhering to the laws obligating large private companies to disclose their impact on the environment.

Disclosure Requirements

Currently, large companies must disclose the following information in their annual report and on other channels, such as their website:

• the process the company’s leadership has taken to evaluate the risk of the business’ operations on the environment; 
• what those climate risks are; 
• what the effect of the risks are on the environment;
• how these risks may impact the future financial performance of the company; 
• how the effect of these risks are measured;
• what steps the business is taking to mitigate these risks; and
• the person or committee within the company that is responsible for monitoring these risks. 

Key Takeaways 

The law is changing to impose additional obligations on large companies to account for their environmental impact. Your environmental disclosure obligations are one area among several corporate governance duties. Most small companies — those bringing in less than £5.1m a year — do not have to comply with these corporate governance disclosure requirements. However, even if your company is exempt from the disclosure requirements, there are compelling commercial reasons to develop environmental policies nonetheless. 

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