The Financial Conduct Authority (FCA) has announced that it is considering how to streamline and enhance its sustainability reporting framework for asset managers, life insurers and FCA-regulated pension providers, as it looks to ease "unnecessary" burdens.

The comments were made following the FCA's review into firms' reporting in line with its climate disclosure rules, which require firms to disclose climate-related information in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

This found that, overall, the rules have increased firms’ consideration of climate risks and supported their integration into firms’ decision-making.

According to the FCA, firms suggested that the rules had helped them to consider climate change as a material risk, build their capabilities, and integrate climate risks and opportunities into their strategies.

However, some firms reported that while detailed climate disclosure information is helpful for institutional investors, the disclosures may be too complex for retail investors, suggesting that they receive limited response from retail investors on their TCFD reports as a result.

And while entity reports were broadly accessible from a firm’s main webpage, product reports were often difficult to find, which the FCA said may have contributed to the lower levels of engagement at the product level by retail investors.

There were also comparability issues, as the FCA acknowledged that whilst firms were generally able to report on backward-looking data, such as carbon emissions, some found it more challenging to provide quantitative data to support forward-looking disclosures, such as scenario analysis.

Several firms, particularly asset managers, also noted that they are required to report under multiple sustainability disclosure regimes and said they found the FCA's TCFD rules too granular, recommending that sustainability disclosures be simplified and streamlined.

In particular, FCA said that it wants to simplify disclosure requirements and ease unnecessary burdens on firms.

It also stressed the need to 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.

In addition to this, the FCA said it wanted to 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," the FCA stated.

"As we take it forward, 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."

The FCA also recently confirmed its intent to consult later this year on how listed companies will adopt the draft UK Sustainability Reporting Standards (SRS), promoting international alignment and the growth of the UK as a centre for sustainable finance. This will include its proposed approach to the disclosure of transition plans.

The UK Sustainable Investment and Finance Association welcomed the FCA's review, stating that it was "particularly pleased" to see the review recognise the need for clarity regarding the future trajectory of these disclosures and the importance of simplification to promote understanding among different client groups.

“It’s now crucial that the government moves swiftly ahead with the adoption of the UK SRS" UKSIF head of policy and regulatory affairs, Oscar Warwick Thompson, said.

"As part of this, we would like to see confirmation in the coming months of a shift from TCFD-aligned reporting to ISSB (International Sustainability Standards Board) aligned reporting across the UK economy, with clear time frames set out for different actors."

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