HM Treasury published an interim report that outlines the UK approach to implementing the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). The report makes a case for mandatory TCFD-aligned disclosures, sets out an indicative path toward implementing these disclosures, explains the key considerations in developing the roadmap, and outlines the next steps in the area of climate risk disclosures. The roadmap presents a coordinated strategy for seven categories of institutions: listed commercial companies; UK-registered companies; banks and building societies; insurance companies; asset managers; life insurers and FCA-regulated pension schemes; and occupational pension schemes. In a separate statement, the BoE Governor Andrew Bailey welcomed the government decision to issue the first Sovereign Green Bond as well as the announcement to press ahead with work on central bank digital currencies.
The roadmap sets out a timeline for the series of actions to be taken by regulators and government departments over the next five years. The government has announced that UK intends to introduce fully mandatory climate-related financial disclosure requirements by 2025, with a significant portion of mandatory requirements in place by 2023. The roadmap illustrates how coverage of disclosures could increase each year as potential new regulatory or legislative measures come into force, subject to the outcomes of relevant regulators’ and government departments’ consultation processes and other statutory requirements such as cost-benefit analysis. The UK Taskforce recognizes the challenges that organizations face in the current environment. However, if these steps are taken now, the UK Taskforce expects that by 2023 climate reporting will be more comprehensive, removing obstacles that arise from the flow of information along the investment chain. An important focus of the regulators’ work over the coming years will be to help facilitate this evolution in climate disclosure.
The interim report highlights that regulators and government departments will assess organizational characteristics to ensure proportionate implementation. Over time, it is likely to be necessary to set more detailed disclosure expectations and some cases may require a phased implementation. The roadmap highlights that, PRA-regulated firms, including banks and building societies and insurance companies, will be subject to the PRA supervisory expectations to disclose their climate-related financial risks and opportunities by the end of 2021. The coverage of disclosures, based on illustrative calculations in terms of the total balance sheet assets of these organizations at December 31, 2019, has been indicated in the roadmap, with the coverage expected to increase progressively until 2023. In 2024-25, further refinement to measures may be considered, including in response to evolving best practice. These proposed disclosure requirements are subject to the outcome of future policy development, consultation, and other regulatory processes. The Annex to the interim report summarizes the implementation approach for the seven categories of institutions.
As a next step, the government will provide an update on progress in the 2022 refresh of the Green Finance Strategy. The Taskforce expects that it may be necessary, in due course, to consider setting more detailed expectations for disclosures to supplement the TCFD recommendations and enhance comparability across UK organizations. Given the interlinkages between UK organizations and the global economy, it is also important to be able to compare UK organizations with those in other jurisdictions. To this end, the UK Taskforce strongly supports the IFRS Foundation’s proposal to create a new, global Sustainability Standards Board as well as the complementary work underway on harmonization by an alliance of voluntary standard-setting organizations. UK regulators and government departments will continue to work with international organizations to support a consistent approach to climate disclosures. As and when progress is made toward international standards for climate disclosures, UK Taskforce member organizations will consider how these might be implemented in the UK.
Keywords: Europe, UK, Banking, Insurance, Securities, Climate Change Risk, ESG, Reporting, Green Bonds, TCFD, Disclosures, PRA, BoE, FCA
Previous ArticleHMT Issues Guidance on Equivalence Framework for Financial Services
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.