New climate change law will be foisted onto companies if regulators fail to help them follow best practice on reporting.

The House of Commons’ Environmental Audit Committee (EAC) today said that current companies’ legislation effectively requires businesses to report on risks and opportunities presented by climate change, and this must also apply to asset holders (such as pension schemes).

Existing rules and codes, including The Companies Act, Corporate Governance Code and Stewardship Code, should be leveraged to push for greater disclosure.

The focus on investment decisions on short-termism means that longer-term considerations such as sustainability and climate change risk fail to be factored in. Climate risk reporting should be mandatory on a “comply or explain” basis from 2022, urges the committee.

“The committee is calling on the government to clarify in law that pension schemes have a duty to protect long-term value and should be considering environmental risks in light of this,” stated the report summary.

Mary Creagh MP, and chair of the Environmental Audit Committee, said incentives in the financial system that encourage short-term thinking need to be fixed. “Long-term sustainability must be factored into financial decision making,” she said.

If regulators fail to push corporates and asset holders to improve disclosure through existing regulatory and legislative structures, then the government should create more law, the committee warned.

Head of ClientEarth climate programme Alice Garton, who gave evidence during the inquiry, said the committee’s suggested timeframe of reporting in line with the Task Force on Climate-Related Financial Disclosures should be considered “a longstop”, “and we urge companies and regulators to act well before then to manage the risks identified in this report”.