New climate-related disclosure rules proposed for asset managers, life insurers and regulated pension providers

On 22 June 2021 the Financial Conduct Authority (FCA) released a consultation paper (CP) (21/17) on its proposals to introduce climate-related financial disclosure rules for asset managers, life insurers and FCA regulated pension providers.

The FCA has explained that in introducing these disclosure rules it is playing its part in the Government’s November 2020 “Roadmap towards mandatory climate-related disclosures”, aligned with the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD). The FCA confirms that their proposed climate-related financial disclosure regime is consistent with the TCFD’s recommendation, with the aim of increasing transparency while enabling “clients and consumers to make considered choices...”

Much like Europe’s Sustainable Finance Disclosure Regulation (SFDR), the FCA’s proposed rules include disclosure requirements both at entity level and at product / portfolio level.  One difference between the SFDR and the FCA’s proposed rules is that the FCA rules will focus on climate-related disclosures only, following the UK’s approach of concentrating on the “E” in Environment, Social and Corporate Governance.  Compared to the SFDR, the FCA’s rules do also look somewhat more manageable for the firms within scope; indeed the FCA comments on its website that it considers the proposed rules to be “proportionate”. 

The FCA confirms the key elements of their proposal are: (1) an annual entity level report on how climate-related risks and opportunities are taken into account in managing / administering investments on behalf of clients and consumers; and (2) annual baseline product / portfolio level disclosures (which are both consistent and comparable) including a core set of metrics.  For both elements, there are proposals for disclosures to be made via the relevant firm’s website.

The FCA notes that it has taken into account other requirements that firms face internationally, including the SFDR.  The intention is to consider the interaction with those rules as the Government develops its policy position.

The FCA’s CP is open for comment until 10 September 2021.

For more information on ESG, please see our White Paper which we have published jointly with IQ-EQ: “ESG: Searching for substance behind the acronym”.