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FCA consults on further climate-related disclosure rules for listed companies and certain regulated firms

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23 Jun 2021

The Financial Conduct Authority (FCA) has published new proposals on climate-related disclosure rules for listed companies and certain regulated firms. It highlights that currently the ‘quantity and quality of climate-related financial disclosures does not yet meet investors’ needs’.

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

The first proposal, contained in consultation paper (CP21/18), is to extend the application of the FCA’s climate-related disclosure requirements for commercial companies with a UK premium listing to issuers of standard listed equity shares (excluding standard listed investment entities and shell companies). The FCA proposes to implement the new rule and associated guidance in a way that mirrors the existing rule and guidance for premium listed commercial companies. It is also seeking feedback on the rationale for (and potential approach to) extending the application of the requirements to issuers of standard listed debt (and debt-like) securities, standard listed issuers of GDRs and standard listed issuers of shares other than equity shares.

Under the proposals, issuers of standard listed equity shares (excluding standard listed investment entities and shell companies) would need to include a statement in their annual report setting out:

  • whether they have made disclosures consistent with the TCFD’s recommendations and recommended disclosures in their annual financial report.
  • where they have not made disclosures consistent with some or all of the TCFD’s recommendations and/or recommended disclosures, an explanation of why, and a description of any steps they are taking or plan to take to be able to make consistent disclosures in the future and the timeframe within which they expect to be able to make those disclosures.
  • where they have included some, or all, of their disclosures against the TCFD’s recommendations and/or recommended disclosures in a document other than their annual financial report, an explanation of why.
  • where in their annual financial report (or other relevant document) the various disclosures can be found.

Consistent with the current rule for premium listed commercial companies the FCA proposes to issue guidance to help in-scope companies determine whether their disclosures are consistent with the TCFD’s recommendations and recommended disclosures. The guidance would also clarify the limited circumstances in which the FCA would expect in-scope companies to explain rather than disclose.

The consultation paper also includes a section asking for views on select Environmental, Social and Governance (ESG) topics in capital markets. Specifically, the FCA wants to generate discussion and engage stakeholders on issues related to green, social or sustainable debt instruments and ESG data and rating providers.

The second proposal, contained within consultation paper (CP21/17) is to introduce climate-related financial disclosure rules and guidance for asset managers, life insurers, and FCA-regulated pension providers consistent with the TCFD’s recommendations. Key elements of the proposals include:

  • Entity-level disclosures. Firms would be required to publish, annually, an entity level TCFD report on how they take climate-related risks and opportunities into account in managing or administering investments on behalf of clients and consumers. These disclosures would need to be made in a prominent place on the main website for the firm’s business and would cover the entity-level approach to all assets managed by the UK firm.
  • Product or portfolio-level disclosures. Firms would be required to produce, annually, a baseline set of consistent, comparable disclosures in respect of their products and portfolios, including a core set of metrics. Depending on the type of firm and/or product or portfolio, these disclosures would either:

– be published in a TCFD product report in a prominent place on the main website for the firm’s business, while also being included, or cross-referenced and hyperlinked, in an appropriate client communication, or

– be made upon request to certain eligible institutional clients.

The scope of the FCA’s proposals would cover 98% of assets under management in both the UK asset management market and held by UK asset owners. The proposals would not apply to firms with less than £5 billion in assets relating to relevant activities.

The FCA is inviting 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.

A press release and both consultations are available on the FCA website.

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