The UK Financial Conduct Authority (FCA) has launched a consultation on plans to update its sustainability disclosure rules.
The regulator wants to update current requirements to report in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD), replacing them with a regime based on the government’s draft UK Sustainability Reporting Standards (UK SRS).
The UK SRS are based on the International Sustainability Standards Board’s (ISSB) framework, with an initial focus on climate reporting.
In keeping with this, the FCA wants to restrict its own disclosure requirements to “information that could reasonably be expected to affect companies’ prospects and is therefore useful for investors”.
In other words, how portfolio companies contribute to or undermine investors’ sustainability objectives will not be required under the proposal.
“Investors often tell us they want clear, consistent information on how risks may impact companies’ financial performance, so they can make better informed decisions,” said Jon Relleen, director of information and exchanges at the FCA.
“We have to consider how to evolve the UK’s sustainability disclosures, given updated global standards, to provide investors with the information they need while supporting UK competitiveness and growth.”
The 115-page consultation document acknowledges that sustainability reporting beyond climate change will be new to many of the companies regulated by the FCA.
“We are therefore proposing that this non-climate reporting can be on a ‘comply or explain’ basis,” it explained.
The proposal states that it is the responsibility of the government to mandate the development of corporate climate transition plans, but that “investors find this information useful”.
“So we are proposing that companies in scope disclose whether and where they have published a transition plan, or the reason why not.
“We also propose requiring them to disclose whether they have obtained third-party assurance on sustainability disclosure.”
While all FCA-regulated asset managers, insurers and pension funds are required to publish TCFD reports, the regulator estimates that less than a quarter will be covered by the new climate disclosure rules (UK SRS S2).
To avoid duplicative reporting, it wants to change the existing rules to permit relevant entities to “cross-refer to their UK SRS S2 related disclosures (including Scope 3 disclosures or explanations provided in lieu of Scope 3 disclosures), in accordance with the UK Listing Rules, in their TCFD entity report”.
“Making this consequential amendment will minimise duplicative reporting while we carry out work to consider the longer-term sustainability disclosure framework for these firms,” explained the FCA.
The consultation is open until 20 March, with a final policy statement expected in the autumn, subject to the government introducing the UK SRS.
