Financial Conduct Authority  

FCA publishes climate-related disclosure rules to 'reduce misselling'

FCA publishes climate-related disclosure rules to 'reduce misselling'

The City watchdog’s new disclosure rules for listed firms should help reduce the risk of consumers buying unsuitable and mis-sold products, the regulator has said.

In a policy statement published today (December 21), the Financial Conduct Authority confirmed it would enforce a rule for premium listed companies, including advice firms, that mandates better disclosure around climate-related risks and opportunities.

Originally announced for consultation in March, the new rules will require firms to include a statement in their annual financial report setting out whether they have made disclosures consistent with the recommendations made by the Taskforce on Climate-related Financial Disclosures.

The TCFD’s recommendations include making the organisation’s governance around climate-related risks known, outlining actual and potential impacts of such risks, informing shareholders how the firm identifies, assesses and manages the risks and releasing targets for assessing how these risks are managed.

If the company does not provide the information consistent with the taskforce's recommendations, it must explain why and provide a plan for providing such disclosure in the future.

The FCA said it expected the new rules to address potential harms and “reduce the risk of consumers buying unsuitable or mis-sold products” by supporting “more reliable climate-related disclosures to clients and end investors”.

It also hoped the change would fill product gaps — by enabling financial services firms to develop products that meet consumers’ climate-related preferences — and enhance market integrity due to better informed asset pricing.

By providing better information to support firms’ product development, the rules would also support more effective competition between financial services firms, the FCA said.

In force from January, the rules will apply to premium-listed advice firms Quilter, Close Brothers and Charles Stanley alongside Hargreaves Lansdown, AJ Bell, Aviva, HSBC, Jupiter, Brewin Dolphin, Liontrust and other listed financials.

The first set of results to include the new disclosures will be for the year 2021 and therefore published in 2022.

The FCA said: “[The rules] should help markets allocate capital more effectively, both within and across companies and projects.

“It should also help ensure that the cost of capital better reflects how well companies are managing climate-related risks and opportunities.

“Ultimately, we should expect financial flows better to support the transition to net zero carbon emissions, through which policymakers hope to address climate change.”

To monitor the outcomes and success of the rules, the FCA said it would look at market outcomes — check the market is rewarding those companies managing the risks of climate change most effectively — and see if the new rules enable investors to make better informed decisions.

It will also gather asset managers’ and life insurers’ views on whether the new rules support investment and risk decisions and continue liaising with the industry on the effectiveness of the new regime.

Increasing transparency around companies’ climate-related risks has become a burgeoning issue in the investment space as consumers increasingly vote with their money on such issues, piling money into ESG funds.