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We comment on the FCA’s consultation paper CP21/18

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11 Sep 2021

We have published our comment letter on Financial Conduct Authority’s (FCA's) consultation paper CP21/18 'Enhancing climate-related disclosures by standard listed companies and seeking views on ESG topics in capital markets' (“the CP”).

Climate change is an undiversifiable risk, which requires an immediate and urgent response.  We strongly support the UK government’s goal of achieving transparency in business reporting on climate-related issues across the UK economy.  We agree that there is an important opportunity for the UK to establish a pathway towards mandatory reporting around the world via the 26th UN Climate Change Conference of the Parties (COP26). We therefore welcome the CP and, consistent with our response to the FCA’s previous consultation paper CP20/3, support the extension of the requirement to report in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) to standard-listed issuers with some exceptions.

Deloitte Touche Tohmatsu Limited’s (DTTL’s) Global CEO, Chairman and CFO are signatories to the statement of support for the Task Force on Climate-related Financial Disclosures (TCFD) and DTTL is actively involved in its work through our colleague Catherine Saire, a member of the TCFD. TCFD is market-driven and investor-focused and is recognised as an appropriate framework by the International Organization of Securities Commissions (IOSCO) globally and by the European Securities and Markets Authority (ESMA) in the EU.  It is not itself a standard, but it is a positive step towards a comprehensive global system.  Progress, including on standards covering climate, is accelerating, as shown by the recent steps taken by IOSCO and the IFRS Foundation, and we fully support and encourage the development of global sustainability standards which will enhance global comparability and consistency.  We appreciate that the proposals in this consultation represent an interim measure until such a standard is published and encourage the FCA – and the UK government more widely - to adopt and align with any such standard as soon as practicable and do all that it can to encourage its adoption by jurisdictions around the world to promote consistent and comparable disclosures.

More broadly, corporate reporting is part of a wider system of transparency that enhances confidence in capital markets and promotes efficient allocation of capital to long-term resilient business.  This therefore includes enhancing confidence in information provided in Green bond prospectuses, and on the use of proceeds of a bond or ESG data and ratings.  These are innovative, fast moving markets in their early stages.  However, investors and other capital markets participants increasingly rely on this information in their decision-making, in particular when assessing long-term, risk-adjusted returns.  Therefore, it is essential to promote trust, transparency, and confidence in the interests of flows of high-quality information relevant to investor needs.  As a result, we welcome moves by the FCA that will drive the transparency, understandability and comparability of information given to investors so they can make informed decisions.

We believe that a foundation of a system of high-quality ESG information is the adoption of global sustainability standards that lead to corporates reporting consistent and comparable ESG information.  This helps to create a baseline layer of high-quality, company-reported information which the rest of the eco-system can rely on to support more efficient markets and more effective decision-making.  We therefore believe this adds to the case for swift and decisive action to bring about global sustainability standards.

We also acknowledge that over time, further measures will be important by way of monitoring and oversight of ESG information and providers. However, we think that this should be balanced against the need to continue to encourage innovation and market developments in a fast-changing market and to meet the evolving needs of retail and institutional investors.  Innovation encourages competition and choice for consumers of these products.  If those customers are well informed, then the market can be an aid in supplying the right products for their needs at the right price. Regulation should not be about eliminating risk from the market, so long as customers are fully aware of the risk they are taking on when making their purchasing decisions.  We therefore think that balanced regulation and voluntary guidance can be useful tools at this stage of the development of the market.

Finally, we strongly encourage the FCA to finalise and publish the outcome of this consultation as soon as practicable, ideally in advance of COP26, which takes place from 1 November 2021, to send the right message to the rest of the world about the UK’s commitment to embracing climate-related disclosures.

Click to view the full comment letter below.

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