FCA adds listed firms to climate disclosure regime as rules confirmed

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FCA adds listed firms to climate disclosure regime as rules confirmed

Regulated asset managers will have to disclose the climate-related attributes of their products from January, under new rules published by the Financial Conduct Authority today.

The rules are aligned with recommendations from the Taskforce on Climate-related Financial Disclosures and will mean FCA-regulated asset managers and asset owners - including life insurers and pension providers - will have to disclose how they take climate-related risks and opportunities into account in managing their investments. 

The FCA said the rules will come into effect from January 1, 2022, as planned.

It is also bringing 200 additional listed companies under the scope of the rules in an extension to issuers of standard listed shares.

The implementation will be a phased approach, with the largest firms, including assets managers with more than £50bn in assets under management and providers with more than £25bn, being asked to publish disclosures first, by June 30, 2023.

The rest will see the rules come into force from January 2023, with a publication deadline of June 30, 2024.

According to the FCA, most asset management firms will fall into its remit for these rules.

Life insurers which provide insurance-based investment products and defined contribution pensions are also in scope, along with platform providers and self-invested personal pension operators.

The regulator’s rules do not apply to defined benefit schemes as these fall within the scope of DWP regulations.

In addition, the rules will not apply to asset managers and providers that have less than £5bn in assets under management.

The FCA said by introducing these rules, it is creating a regulatory framework that will support firms’ contribution to the government's aims to achieve a net zero economy by 2050. The rules will also lead to better outcomes for consumers and a more competitive industry.

A balanced approach

The regulator has promised it would take a balanced approach to what it is asking firms to do.

When it first published its consultation papers in June it said there was good support from the industry, however, several challenges were highlighted, most notably in relation to data gaps and methodological challenges.

The FCA is looking for disclosure to be made at two levels.

The first is at entity-level whereby firms would be required to report annually on how they take climate-related risks and opportunities into account in managing or administering investments on behalf of clients. These must be published on the firm’s main website.

The second is product or portfolio-level disclosures whereby firms would be required to report annually on the individual products or portfolio management services they offer. These include a core set of metrics on carbon emissions.

While the majority of respondents welcomed the proposals, several said data and methodological gaps shouldn’t be a limiting factor to firms' making climate-related disclosures.

Many were concerned that the use of proxies and assumptions could lead to potentially misleading, inconsistent, and inaccurate disclosures for clients and consumers. 

Respondents also said they did not consider that scenario analysis at product level would be useful at this stage. 

The FCA said it would not require firms to disclose information that could be misleading.

It said: “We require firms to explain where and why they have not been able to disclose, as well as the steps they will take to improve the completeness and the quality of disclosure.”

It added: “Our aim is to increase transparency on climate-related risks and opportunities and enable clients and consumers to make considered choices. We recognise, however, that there will be data and methodological challenges for a transitional period. 

“In finalising our position, we have sought to find a balanced and proportionate approach that continues to mobilise the industry forward on climate-related disclosures and encourages the necessary investment in capabilities, while at the same time ensuring that disclosures remain fair, clear and not misleading.”

Listed companies

In a separate policy statement, the FCA discussed extending its climate reporting rules to companies that issue standard listed equity shares.

Issuers of standard listed shares, or equity shares represented by certificates (global depositary receipts) must now include a statement in their annual financial reports setting out whether their disclosures meet the recommendations of the TCFD. If they don’t, they’ll need to explain why.

The FCA stated: “Our final rule forms part of a broader strategic aim to promote transparency on climate change and wider sustainability matters along the value chain. 

“As elaborated in our strategy for Positive Change, launched in November 2021, ‘better corporate disclosures will inform market pricing and support business, risk and capital allocation decisions’.”

The regulator said it is extending the application of the existing climate-related disclosure requirements – on a comply or explain compliance basis – to issuers of standard listed shares and standard listed issuers.

With this expansion of scope, more than 200 additional listed companies will be subject to TCFD-aligned disclosure requirements under the rules.

It will apply for accounting periods beginning on or after January 1, 2022. 

sonia.rach@ft.com

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