FCA published the consultation papers CP21/18 and CP21/17 on climate-related disclosure rules for listed companies and for asset managers, life insurers, and pension providers. In CP21/18, FCA is proposing to extend the application of its TCFD-aligned disclosure requirements to issuers of standard listed equity shares. Through CP21/18, FCA is also seeking views on other environmental, social, and governance (ESG) issues in capital markets, including green and sustainable debt markets and the increasingly prominent role of ESG data and rating providers. In CP21/17, FCA is proposing to introduce the TCFD-aligned disclosure requirements for asset managers, life insurers, and FCA-regulated pension providers, with a focus on the information needs of clients and consumers. The feedback period for both the consultations ends on September 10, 2021, with FCA intending to confirm the final policy on climate-related disclosures before the end of 2021. In addition, FCA will separately consider stakeholder views on the ESG-related discussion topics in capital markets, with a view to publishing a Feedback Statement in the first half of 2022.
Proposal on disclosures for listed companies
Building on the requirements for premium listed commercial companies, FCA is proposing to apply the TCFD-aligned disclosure requirements to a wider scope of commercial companies—bringing into scope issuers of standard listed equity shares, excluding the standard listed investment entities and shell companies. FCA is proposing to implement this new rule and the associated guidance in a way that mirrors the existing rule and guidance for premium listed commercial companies. Under the proposal, FCA would require issuers of standard listed equity shares (excluding standard listed investment entities and shell 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, and 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
- where in their annual financial report (or other relevant document) the various disclosures can be found
In CP 21/18, FCA also included a discussion component to seek views on select ESG topics in capital markets. FCA is looking to generate discussion and engage stakeholders on issues related to green, social, or sustainability labeled debt instruments and ESG data and rating providers. The consultation paper and discussion chapter will interest a wide range of stakeholders, including corporate finance and other advisers, investors and asset owners, ESG data and rating providers, industry groups, regulated firms, policymakers and regulatory bodies, industry experts, and commentators.
Proposal on disclosures for asset managers, life insurers, and pension providers
CP21/17 sets out the proposals to introduce climate-related financial disclosure rules and guidance for asset managers, life insurers, and FCA regulated pension providers, consistent with the TCFD recommendations. FCA is introducing a new ESG Sourcebook in the FCA Handbook to set out the proposed rules and guidance. While the proposals in this consultation relate solely to climate-related disclosures, FCA anticipates that the ESG Sourcebook will expand over time to include new rules and guidance on other climate related and wider ESG topics. The proposals aim to increase transparency and enable clients and consumers to make considered choices, while remaining proportionate for firms. The key elements of the proposals are:
- Entity-level disclosures. Firms would be required to annually publish an entity-level TCFD report on how they take climate-related risks and opportunities into account in managing or administering investments on behalf of clients and consumers. These disclosures must be made in a prominent place on the main website for the firm’s business and should cover the entity-level approach to all assets managed by the UK firm.
- Product or portfolio-level disclosures. Firms would be required to annually produce a baseline set of consistent, comparable disclosures in respect of their products and portfolios, including a core set of metrics. Depending on the type of firm and/or product or portfolio, these disclosures would either be published in a TCFD product report in a prominent place on the main website for the firm’s business, while also being included, or cross-referenced and hyperlinked, in an appropriate client communication, or be made upon request to certain eligible institutional clients.
Comment Due Date: September 10, 2021
Keywords: Europe, UK, Banking, Insurance, Securities, Pensions, Climate-Related Disclosures, TCFD, ESG, Standards Listed Companies, Disclosures, Climate Change Risk, 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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