New proposals for climate-related disclosures

The Financial Conduct Authority (FCA) has published new proposals for climate-related disclosure rules for listed companies and some regulated firms.

Their proposals follow the introduction at the end of last year of climate-related disclosure rules for the most prominent listed commercial companies. These requirements are aligned with the recommendations from the Taskforce on Climate-related Financial Disclosures (TCFD).

In their new consultation, the FCA proposes that the application of its TCFD-aligned Listing Rule is extended for premium-listed commercial companies to issuers of standard listed equity shares.

They are also proposing to introduce TCFD-aligned disclosure requirements for asset managers, life insurers, and FCA-regulated pension providers, focusing on clients and consumers’ information needs.

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.”

These new proposals from the FCA are the first substantive policy proposals for UK asset management and asset owner sectors since the end of the EU Withdrawal transition period.

With the UK financial services market having a global reach, the FCA has approached the design of this regime with international consistency in mind to accommodate the different business models operated by firms. Under the proposed rules, firms will have to provide the right information on climate-related risks and opportunities, so this data is available along the investment chain. Once implemented, the rules will mean companies in the real economy, financial services firms, clients and consumers will have access to the right climate-related information.

Access to the right information should encourage investment in more sustainable projects and activities, in line with the Chancellor’s expectations in the FCA’s recent remit letter, which said the FCA should ‘have regard’ to the government’s net-zero by 2050 commitment.

The FCA is also asking for views on other topical environmental, social and corporate governance (ESG) issues in the capital markets. These issues include green and sustainable debt markets and the increasingly prominent role of ESG data and rating providers.

For both consultations, the FCA is inviting feedback by 10th September and wants to confirm its final policy on climate-related disclosures by the end of the year.

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September 2021 Investment & Economic Update