Friday 6 March 2020 3:24 pm

City watchdog outlines tougher climate change disclosures for top firms

The UK’s top listed firms must disclose how their business is affected by climate change using globally-agreed guidance or explain why they cannot, under proposals outlined today by the Financial Conduct Authority (FCA).

Under the plans, firms with a premium listing would have to either make climate-related disclosures in line with the approach set out by the Taskforce on Climate-related Financial Disclosures (TCFD), or explain to shareholders why they have not done so. 

Read more: Investors demand companies manage climate change risk ahead of AGM season

Outgoing FCA chief executive Andrew Bailey said the proposed rules would “help to provide the transparency the market needs to be able to assess how well companies are adjusting to the risks of climate change”.

“Improved disclosures will support better asset pricing and enable investors to make more informed choices about where to allocate their capital, which will ultimately support the transition to a low carbon economy,” added Bailey.

TCFD was established by the Financial Stability Board, which coordinates the G20 countries’ financial rules, in 2017. The internationally-recognised framework requires companies to disclose how climate-related risks or opportunities could impact their businesses. 

There are 480 premium-listed companies on the London Stock Exchange, with a combined market capitalisation of £2.3 trillion, or 60 per cent of the exchange’s total. 

The regulator said that Sovereign-controlled companies would also have to comply with its new climate rules, implying that Saudi Arabia’s state-owned oil company, Saudi Aramco, would also have to meet the requirements if it seeks a London listing.

Daniel Wiseman, a lawyer for climate campaigning organisation Client Earth, said the FCA had “sent a loud signal that climate change and the energy transition threaten to have major impacts on all listed companies”.

However Wiseman criticised the regulator’s decision to give firms the option not to make the climate-related disclosures if they explain why they have not done so.

“The FCA should just make the TCFD recommendations mandatory for all listed companies. This would be much cleaner and simpler and provide the certainty that companies and investors need to run their businesses effectively,” he added. 

The FCA said today that it would consider extending the proposed rules to a wider range of listed companies, and added that it would provide guidance on existing obligations for all listed firms to disclose information on climate, social, and governance matters. 

The watchdog also said it was considering how best to enhance climate-related disclosures from all firms it regulates, including asset managers and life insurers. 

Read more: Andrew Bailey urged to keep climate focus at Bank of England

Industry body the Investment Association welcomed the proposals, adding that the investment industry is “looking to the UK’s largest listed companies to demonstrate that climate change is being taken seriously in boardrooms”.

“Climate change could result in a significant loss of value in companies if risks are not effectively measured and managed, ultimately hitting savers’ pockets,” said Andrew Ninian, the IA’s director of stewardship and corporate governance.