The UK’s Financial Conduct Authority (FCA) has extended climate-related disclosure requirements to most standard listed public companies as well as asset managers, life insurers and pension providers under its aegis.
Under the rules, which take effect on Jan. 1, 2022, issuers will be expected to report whether their disclosures meet the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD), on a comply or explain basis.
In addition, asset managers and institutional investors — such as pension funds and insurance companies — will have to disclose how they incorporate climate-related risks and opportunities into their investment management processes.
They will also have to make disclosures about the climate-related attributes of their products, the FCA statements said.
The new requirements will be phased in for asset managers, starting with large firms and applying to smaller firms in a year’s time.
The FCA said it’s the world’s first securities regulator to introduce mandatory TCFD-aligned disclosure requirements for asset managers and owners.
The UK regulator added, “Better corporate disclosures will help inform market pricing and support business, risk and capital allocation decisions. And improved disclosures to clients and consumers will help them make more informed financial decisions.
This, in turn, will strengthen competition in the interests of consumers, protecting them from buying unsuitable products and driving investment towards greener projects and activities.”
Commenting on the extension, Oliver Crowley, a partner at law firm Pinsent Masons, said: “In scope asset managers and financial market participants will need to consider carefully their disclosure obligations under the new rules and how these will be presented. The FCA has acknowledged that there is a balance to be struck on achieving perfect methodologies and disclosures and ‘getting started’.”
He added, “Given the limited data that may be available initially to asset managers in certain contexts and asset classes, the FCA has opted for a comply or explain approach to the extent data is not available and also requires the disclosure of the steps firms will take to improve the quality and completeness of the disclosures. “
The initially proposed best efforts disclosure obligation has been softened to be ‘as far as reasonably practicable’ taking into account ‘time, costs, resources and practicalities’, but what this means in practice will not be without its challenges until market practice settles.”
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