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.