Tuesday 22 June 2021 3:15 pm

FCA tables new climate disclosure rules to tackle fossil fuel investment chains

The UK’s financial watchdog has tabled new proposals on climate-related disclosure rules for listed companies and certain regulated firms in the UK today.

As climate-conscious commitments and environmental disclosure climb in importance for investors and consumers alike, the Financial Conduct Authority’s (FCA) new rules help ensure climate-related risks are known across the investment chain.

“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,” FCA executive director of consumer and competition, Sheldon Mills, said.  

“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 end of May saw the financial services industry revealed as one of the UK’s biggest contributors to climate change, according to research by Greenpeace UK and WFF.

UK banks and asset managers were responsible for financing 805m tonnes of carbon in 2019, equivalent to 1.8 times the annual net emissions of the UK as a whole. 

The new focus on green financing, with the help of the FCA, should encourage investment in more sustainable projects and activities – which are consistent with the government’s net zero target.

Keen on green

The watchdog set out climate-related disclosure rules for large listed commercial companies in December, which are aligned with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations.

The FCA has today proposed an extension to applications for its listing rule for premium-listed commercial companies to issuers of standard listed equity shares aligned with the TCFD.

Another new rule will be mean asset managers, life insurers, and FCA-regulated pension providers will have to disclose their climate requirements.

“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,” Mills added.

The new proposals are among the FCA’s first practical policy proposals for the UK asset management and asset owner sectors – since Britain and the EU officially parted ways.

The watchdog has also ensured the new climate rules are internationally applicable for global firms, while it is also seeking views on other environmental, social and governance (ESG) issues in capital markets.

The FCA will confirm its final policy on climate-related disclosures before the end of this year.

Group head of sustainability at pensions investment manager Cardano, Will Martindale, welcomed the FCA’s proposals to raise the “minimum standards” for climate-related disclosure.

“The climate crisis is a collective action problem. Ultimately, we need to move the market as-a-whole to protect savers from the environmental and financial consequences of climate change.”

Although pension funds will need to prepare TCFD reports by October, Martindale urged that there should be more targets for the financial services industry – much like the government’s own targets.

“While we understand the complexities of target setting, it shouldn’t stop the industry from trying. We need to see the whole industry adopt target setting on decarbonisation, not just pension funds.”