FCA Plans to Relax Climate Reporting Rules for Financial Firms

In Short

• The FCA plans to make climate reporting useful for all types of investors.
• The objective, among others, is to make the UK a global hub for sustainable finance.
• Asset managers have had to report using multiple sustainability reporting rules.

The UK's financial regulatory body, the Financial Conduct Authority (FCA), has announced its plans to simplify climate-related reporting requirements for asset managers, life insurers, and FCA-regulated pension providers, among other stakeholders.

The push comes on the back of a detailed review of how firms are presently applying the climate disclosure rules pursuant to the Task Force on Climate-related Financial Disclosures (TCFD) framework, which helps companies report how they manage climate-related risks and opportunities.

In its findings, the FCA says that, by and large, these rules have been useful in helping organisations understand climate risks, improve internal systems, and include climate issues in their decision-making processes. Reportedly, many businesses said that the rules encouraged them to view climate change as a serious business risk, thereby helping them handle it efficiently.

Read More: SEC Drops Climate Rules as States and Global Powers Push Ahead

Yet, the review is not free of problems. Organisations also expressed concern with regard to how the disclosures are useful for institutional investors but too complex for everyday retail investors, who hardly engage with them.

Another issue raised is accessibility, noting that while company reports were generally easy to find on websites, product-level reports were elusive, making it more difficult for retail investors to engage.

Compounding this are comparability challenges, where many were able to report on past data, for example, carbon emissions, but struggled with forward-looking data, such as scenario analysis, as these require more complex data and assumptions, which, according to some firms, are very difficult to provide.

Scores of businesses, particularly asset managers, are being asked to report under multiple sustainability frameworks, which is another problem because it leads to increased workload and confusion. They also said the FCA's rules were too meticulous and suggested making them simpler and more consistent.

Factoring all these in, the FCA said that it wants to do away with unnecessary burdens and make reporting more useful for investors. It aims for clearer and more relevant reporting, as well as reducing greenwashing attempts and improving consumer outcomes.

Also Read: Climate Risks 'Deprioritised' Under Bailey, Say Former BoE Staff

It also calls for alignment of UK rules with international standards, particularly those from the International Sustainability Standards Board (ISSB), to shore up the UK’s position as a leader in sustainable finance.

With affirmation, the financial regulatory body said it will dwell at length on sustainability reporting, including the Sustainability Disclosure Requirements (SDR), the new UK Sustainability Reporting Standards (SRS), and transition plan disclosures. In addition, there will be a public consultation later this year on how listed companies will start adhering to the UK SRS.

The UK Sustainable Investment and Finance Association (UKSIF) said the FCA's review is a right start to bring clarity and simplification to the process, particularly to simplify climate reporting in such a way that it is equally understandable and useful for all types of investors.

Also Read: Understanding the Carbon Disclosure Project (CDP), Scores, Climate & Sustainability

It is urging the UK government to attain speed in adopting the UK SRS and is calling for a clear shift from TCFD-based reporting to ISSB-aligned reporting, with specific timelines for each type of firm.

Ends/

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Source: FCA