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FCA proposes tougher climate disclosures for listed firms

16 March 2020: more stringent climate-related financial disclosure rules could be imposed on premium listed companies after the Financial Conduct Authority published new proposals.

Under the plans, all such companies will have to either make climate-related disclosures consistent with the Taskforce on Climate-related Financial Disclosures (TCFD) or explain why they have not done so. This could then be extended at a later date to cover a wider gamut of issuers.

Commenting on the proposals Andrew Bailey, FCA Chief Executive and soon to be Governor of the Bank of England, said: “Climate change presents a serious and wide-ranging threat to global economic prospects, society more broadly and our natural environment.

“The changes we propose will help to provide the transparency the market needs to be able to assess how well companies are adjusting to the risks of climate change. 

“Improved disclosures will support better asset pricing and enable investors to make more informed choices about where to allocate their capital – which will ultimately support the transition to a low carbon economy.”

The watchdog is also seeking feedback on clarifications to existing requirements on all listed companies that already require climate and other sustainability-related disclosure.

Philippa Kelly, ICAEW’s Director, Technical Strategy Business Group, Financial Services Faculty, said: “It is hoped that this information will help investors – and asset owners, like pension funds, make better decisions – including about how to vote, where to exert pressure, and when to divest. 

“It will also help banks understand more about the risks these companies are facing and to price that into lending and financing to help ensure sustainable and appropriate growth. 

“Better disclosure is an important step, but to influence real change, capital and finance can be effective levers. The role of investors and banks is symbiotic here, but it is the investment managers who need to influence boards and speak up on issues where change is not just desired, but increasingly required. 

“This means not divesting, but engaging, despite the increasing role of passive investment and the disincentives around influencing inherent within that business model.”

The Climate Financial Risk Forum – an industry group jointly launched by the FCA and the Bank of England’s Prudential Regulation Authority last year, is also set to publish industry guidance – based on the TCFD’s recommendations. This covers climate-related disclosures, risk management, scenario analysis and innovation. 

The FCA is also exploring how best to enhance climate-related disclosures by regulated firms, including asset managers and life insurers, to ensure a coordinated approach. 

The public consultation ends on 5 June 2020.

Are you professionally ready to mitigate the risk and maximise the opportunity of climate change? Find out more via ICAEW’s dedicated Climate Hub.