We're setting out the findings and next steps following our review into firms' climate reporting in line with our rules.
Who this applies to
This will interest:
- Asset managers.
- Life insurers.
- FCA-regulated pension providers.
- Trustees, operators and managers of occupational pension schemes.
- Industry associations, trade bodies and civil society groups.
- Accountants, auditors and investment consultants.
- Other regulators and policymakers.
- Consumer groups.
Why we did this work
In 2021, we finalised climate disclosure rules[3] for asset managers, life insurers and FCA-regulated pension providers. These require firms to disclose climate-related information in line with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations.
In 2023, the Financial Stability Board announced that the TCFD’s work has been completed, with the International Sustainability Standards Board (ISSB) Standards fully incorporating its recommendations. Having fulfilled its remit, the TCFD has now been disbanded.
We reviewed how our rules have been working and firms’ views on the regime. We reviewed a sample of 10 TCFD entity reports and 77 TCFD product reports from 8 of the same entities. We also engaged with trade associations and 7 firms in-scope of the TCFD rules.
What we found
Overall, we found that our rules have increased firms’ consideration of climate risks and supported their integration into firms’ decision-making. Firms were more transparent with their clients and consumers but encountered some challenges with the availability of data and consistent, well-developed methodologies. They also considered some information too complex for retail investors to engage with and thought the regime could be less granular and more proportionate. They saw opportunities to simplify reporting, particularly given their broader sustainability disclosure obligations.
Specifically, we found:
- Risk management: Firms noted that the rules have helped them to consider climate change as a material risk, build their capabilities and integrate climate risks and opportunities into their strategies. The rules have also helped firms to be more transparent with their clients and consumers about how they take into account climate risks when managing or administering assets on their behalf.
- Audience: Some firms told us that while detailed climate disclosure information is helpful for institutional investors, the disclosures may be too complex for retail investors. As such, firms said they receive limited response from retail investors on their TCFD reports, particularly at product level.
- Accessibility: While entity reports were broadly accessible from a firm’s main webpage, product reports were often difficult to find. This may have contributed to the lower levels of engagement at product level by retail investors.
- Data: Firms were generally able to report on backward-looking data, such as carbon emissions. But some firms found it more challenging to provide quantitative data to support forward-looking disclosures, such as scenario analysis. For example, only around half of the product reports we reviewed disclosed the impact of all 3 climate scenarios on the fund, as required. This limited comparability between reports.
- Proportionality: Firms, particularly asset managers, noted that they are required to report under multiple sustainability disclosure regimes and considered our TCFD rules too granular. They suggested that sustainability disclosures could be simplified and streamlined.
- Regulatory clarity: Firms were aware of the broader direction of travel towards the ISSB standards, globally and in the UK. So, they asked us to clarify the future of our TCFD rules. They encouraged us to consider international consistency while working with industry to develop a future regime which is practical for firms.
Next steps
We have updated our sustainability reporting requirements[4] webpage to clarify how firms in scope of both our TCFD and Sustainability Disclosure Requirements (SDR) rules can report efficiently under both regimes.
In light of our findings, we are also considering how to streamline and enhance our sustainability reporting framework. We want to:
- Simplify disclosure requirements and ease unnecessary burdens on firms.
- Maintain good outcomes for clients and consumers and improve the decision-usefulness of reporting, building on the work of SDR to improve trust and reduce greenwashing.
- Promote international alignment and help maintain the UK’s position as a global leader in sustainable finance.
This work is a natural progression in sustainability reporting and reflects our priorities to support growth and be a smarter regulator. It also supports our wider work to streamline the regulatory regime for asset managers.
As we take it forwards, we will consider sustainability reporting as a whole. This includes SDR, the ongoing endorsement of the ISSB standards (known as UK Sustainability Reporting Standards), and developments on transition plans. We will continue to work closely with the Government and regulatory counterparts to support consistent outcomes along the investment chain.
We also plan to engage further with industry to guide our next steps.
Have your say
If you would like to engage with us as part of this next phase, email [email protected].
This work builds on our previous commitments and broader work to support high-quality sustainability information along the investment chain, as set out in our sustainability reporting webpage.
Firms must continue to meet their requirements in the ESG Sourcebook (ESG 2) (PDF)[5], including ESG 2.1.3R (on publishing reports in a way that makes it easy for prospective readers to locate and access) and ESG 2.3.11R (on including all 3 scenarios in scenario analysis).