FCA Introduces Rule to Enhance Climate-Related Financial Disclosures
FCA published the policy statement PS20/17 to enhance climate-related disclosures by listed issuers and clarify existing disclosure obligations. PS20/17 contains a final rule and guidance that set out a requirement for commercial companies with a UK premium listing to include a compliance statement in their annual financial report. The new rule will apply for accounting periods beginning on or after January 01, 2021. The first annual financial reports subject to this rule would then be published in Spring 2022. PS20/17 also contains a technical note, which applies with immediate effect and clarifies the existing disclosure obligations in the legislation and the FCA Handbook.
The new rule in PS20/17 requires commercial companies to set out, in their compliance statement, whether they have made disclosures consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) or explain why they have not done so. The instrument giving effect to the new rule is presented in Appendix 1 of PS20/17. Post consultation, FCA has made the following changes to the rule:
- Amended the rule to promote transparency of any steps companies are taking or plan to take to make consistent disclosures in the future
- Provided additional guidance on the limited circumstances in which FCA would expect issuers to explain, rather than disclose
- Provided guidance to clarify that a company’s determination of consistency with the TCFD recommendations should be informed by a detailed assessment of disclosures which considers the TCFD published guidance materials
- Provided additional high-level guidance in relation to the level of detail to be included in disclosures of companies
The final rule will directly impact commercial companies with a UK premium listing. Other listed issuers may also be interested in the plans to consult in the future on extending the rule to a wider scope of listed issuers. As at December 07, 2020, the rule will apply to 460 companies on the FCA Official List. The final technical note will also impact a wider scope of listed issuers, including listed issuers, issuers with securities admitted to trading on regulated markets, and other entities in scope of requirements under the Market Abuse Regulation and the Prospectus Regulation. PS20/17 will also be of interest to sponsors of listed companies, corporate finance and other advisors, accountants and auditors, consumer groups and individual consumers, industry groups, trade bodies and civil society groups, regulated firms, investors, policymakers and regulatory bodies, industry experts and commentators, and academics and think tanks.
FCA is planning to issue a consultation paper in the first half of 2021 on proposals to extend the application of this rule to a wider scope of listed issuers. FCA will also consider consulting on strengthening the compliance basis of this rule. FCA is separately planning to consult on potential client-focused TCFD-aligned disclosures by UK-authorized asset managers, life insurers, and FCA-regulated pension schemes in early 2021.
Keywords: Europe, UK, Banking, Insurance, Securities, PS20/17, TCFD Recommendations, Sustainable Finance, CP20/3, Climate Change Risk, Disclosures, ESG, FCA
Michael Denton, PhD, PE
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.
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
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