The Financial Conduct Authority (FCA) has published two policy statements PS21/23 and PS21/24 confirming the final rules and guidance on climate-related disclosures for listed companies and for asset managers, life insurers, and pension providers. In PS21/23, FCA is extending the application of its climate-related disclosure requirements to issuers of standard listed shares and Global Depositary Receipts representing equity shares. In PS21/24, FCA is introducing a new Environmental, Social, and Governance (ESG) sourcebook to the FCA Handbook containing rules and guidance for asset managers and certain FCA-regulated asset owners to make disclosures consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). Both the policy statements will apply from January 01, 2022. In addition, FCA and the Securities and Exchange Commission of Brazil (CVM) have singed a Memorandum of Understanding (MoU) on the arrangements for cooperation and exchange of supervisory information on cross-border credit rating agencies or CRAs. The MoU will provide for the processes for CVM and FCA to exchange information at the Supervisory Colleges for CRAs and will also govern cooperation for the supervision of Cross-Border CRAs outside of these Supervisory Colleges.
Final rule on disclosures for listed companies: PS21/23
FCA had consulted, in June 2021, on extending the application of climate-related disclosure requirements for premium listed commercial companies to a wider scope of listed issuers (CP21/18). Through PS21/23, FCA is confirming the final policy position, which is broadly as consulted on but with a change to the scope of issuers that are subject to the new rule and the addition of a guidance provision on transition plan disclosures. The new rule will apply for accounting periods beginning on or after January 01, 2022. Accordingly, the first annual financial reports subject to the new rule will be published in early 2023. The new rule requires in-scope companies to include a statement in their annual financial report setting out:
- whether they have made disclosures consistent with the TCFD recommendations and recommended disclosures in their annual financial report.
- where they have not made disclosures consistent with some, or all, of the TCFD recommendations and/or recommended disclosures, an explanation of why, a description of any steps they are taking or plan to take to be able to make consistent disclosures in the future, and the timeframe within which they expect to be able to make those disclosures.
- where they have included some, or all, of their disclosures against the TCFD recommendations and/or recommended disclosures in a document other than their annual financial report.
- an explanation of why and where in their annual financial report (or other relevant document) the various disclosures can be found.
Final rule on disclosures for asset managers, life insurers, and pension providers: PS21/24
FCA had consulted, in June 2021, on proposals for asset managers, life insurers, and regulated pension providers to make climate-related disclosures consistent with the TCFD recommendations. Through PS21/24, FCA is summarizing the feedback received to the consultation and confirming the final policy position. FCA is introducing new rules and guidance for asset managers and certain regulated asset owners to make mandatory disclosures consistent with the TCFD recommendations on an annual basis at:
- Entity level. An entity-level TCFD report setting out how they take climate-related risks and opportunities into account in managing or administering investments on behalf of clients and consumers.
- Product or portfolio level. A baseline set of consistent, comparable disclosures in respect of their products and portfolios, including a core set of metrics.
The rules are accompanied by guidance to help firms determine whether their disclosures are consistent with the TCFD recommendations and recommended disclosures, and/or the FCA requirements. The instrument giving effect to the new rules is included in Appendix 1 of PS21/24. The rules aim to increase transparency on how firms are managing climate-related risks and opportunities and enable clients and consumers to make considered choices, while remaining proportionate. This should, in turn, help to enhance competition in the interests of consumers, protect consumers from unsuitable products, and drive investment toward greener projects and activities. The rule will apply from January 01, 2022 for the largest in-scope firms and one year later for smaller firms above the GBP 5 billion exemption threshold. The first public disclosures in line with the requirements must be made by June 30, 2023.
Effective Date: January 01, 2022
Keywords: Europe, Americas, UK, Brazil, Insurance, Securities, Pensions, TCFD, ESG, Disclosures, Climate Change Risk, MoU, Credit Rating Agencies, FCA Handbook, CVM, FCA
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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