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

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.

But a lack of data and transparency in this area has raised fears of greenwashing and concerns over misselling.

Just this morning, warning bells were sounded that investors could be misled when choosing climate-related funds as a third of low-carbon portfolios were found to hold oil and gas stocks.

Chancellor Rishi Sunak last month pledged to "go further" than the TCFD’s recommendations and set out a roadmap that by 2025, large companies and financial institutions in the UK would be mandated to disclose the threats to their business from climate change.

He also said the government would implement a new ‘green taxonomy’ — something the industry has long called for in the environmental, social and governance investing world — that would robustly classify what is meant by ‘green’.

Jane Goodland, corporate affairs director at Quilter, said: “Climate change is undoubtedly one of the greatest challenges we face and it is absolutely right that regulators engage with climate risk as a threat to financial stability.

"The new rules aim to address the fact that, increasingly, investors want to commit their money to companies and projects that will support the transition to a low-carbon economy. It is right to push for greater transparency about how issuers of listed securities may be impacted by climate-related risks and it will help to ensure that securities are more accurately priced."

She added: "Quilter already has plans in place to address these recommendations as we intend to align with TCFD in future reports, however we recognise that full alignment is a substantial undertaking and as such may take a few reporting cycles.”

imogen.tew@ft.com

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