FCA consults on TCFD proposals for asset managers and pension providers

The Financial Conduct Authority (FCA) has launched a consultation on proposals to introduce the Task Force on Climate-related Financial Disclosures' (TCFD) requirements for asset managers, life insurers, and FCA-regulated pension providers.

Under the plans, 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, to be shared in a prominent place on the firm's main website.

They would also be required to produce, on an annual basis, a baseline set of consistent and comparable disclosures in respect of their products and portfolios, including a core set of metrics.

The proposed scope would cover 98 per cent of assets under management in both the UK asset management market and held by UK asset owners, representing £12.1trn in assets managed in the UK, although the proposals would not apply to firms with less than £5bn in assets relating to relevant activities.

The proposals aim to increase transparency and enable clients and consumers to be able to make considered choices, whilst still remaining “proportionate” for firms, with the FCA stating that better transparency via the proposed regime is likely to benefit clients' and consumers' decision-making internationally.

"Given the urgency and scale of the changes needed to support a transition to a low-carbon economy, we consider this to be a good outcome," it stated.

The approach also aims to support the flow of information along the investment chain, particularly in relation to the disclosures required under the Department for Work and Pensions’ draft regulations and statutory guidance for occupational pension schemes.

Commenting on the proposals, FCA executive director of consumer and competition, Sheldon Mills, said: "The climate change challenge affects the whole of society. It is vital that the financial services sector plays a leading role in addressing this challenge.

"Managing the risks of climate change and transitioning to a cleaner and less carbon-intensive economy will require high quality information on how climate-related risks and opportunities are being managed throughout the investment chain.

"However, climate-related disclosures do not yet meet investors’ and market participants' needs. The new rules will help markets, investors and ultimately consumers better understand the impact of climate change and make more informed decisions."

The consultation runs until 10 September 2021, with the FCA expected to confirm its final policy on climate-related disclosures before the end of 2021.

This is in line with the broader TCFD roadmap published by the government in 2020, which outlined plans to implement mandatory climate-related disclosures across the UK economy by 2025.

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