FCA seeks tougher climate disclosure rules

Proposals from the UK’s financial regulator on climate change disclosure have been described as a clear sign that they want to toughen up the rules.

The Financial Conduct Authority (FCA) has published new proposals on climate-related disclosure rules for listed companies and certain regulated firms saying the current rules do not meet the needs of investors of clients.

The proposals follow the introduction of climate-related disclosure rules for the most prominent listed commercial companies in December 2020 which are aligned with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).

In the consultations the FCA is proposing:

> to extend the application of its TCFD-aligned Listing Rule for premium-listed commercial companies to issuers of standard listed equity shares.

>to introduce TCFD-aligned disclosure requirements for asset managers, life insurers, and FCA-regulated pension providers, with a focus on the information needs of clients and consumers.

Sheldon Mills, Executive Director of Consumer and Competition at the FCA said: “The climate change challenge affects the whole of society. It is vital that the financial services sector plays a leading role in addressing this challenge. Managing the risks of climate change and transitioning to a cleaner and less carbon-intensive economy will require high quality information on how climate-related risks and opportunities are being managed throughout the investment chain.

“However, climate-related disclosures do not yet meet investors’ and market participants’ needs. The new rules will help markets, investors and ultimately consumers better understand the impact of climate change and make more informed decisions.”

The new proposals are among the FCA’s first substantive policy proposals for the UK asset management and asset owner sectors since the end of the EU Withdrawal transition period. Given the global reach of regulated firms operating in the UK, the FCA has approached the design of the regime with international consistency in mind and to accommodate firms’ different business models.

Gareth Mee, UK Sustainable Finance Consulting Leader at EY, said: “This is a clear signal from the financial regulator that climate-related disclosures need to improve. A more standardised approach would represent a big step forward and help roll out a wider reaching programme of disclosure across the financial services market – notably bringing into scope key parts of the market that have yet to fully engage. Consistency will be the key to success; creating a foundation to build upon, measure against and hold companies to account from.”

“The proposed rules are designed to help make sure that the right information on climate-related risks and opportunities is available along the investment chain – from companies in the real economy, to financial services firms, to clients and consumers,” said the FCA.  “This should help encourage investment in more sustainable projects and activities, consistent with the Chancellor’s expectations in the FCA’s recent remit letter that the FCA should ‘have regard’ to the Government’s commitment to achieve a net-zero economy by 2050.”

Alongside these proposals, the FCA said it is also seeking views on other topical environmental, social and governance (ESG) issues in capital markets, including on green and sustainable debt markets and the increasingly prominent role of ESG data and rating providers.

The FCA has asked for feedback to both consultations by 10 September 2021 and intends to confirm its final policy on climate-related disclosures before the end of 2021. The FCA will separately consider stakeholder views on the ESG-related discussion topics in capital markets, with a view to publishing a Feedback Statement in the first half of 2022.

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