The Financial Conduct Authority (FCA) is calling on listed companies to improve their climate-related disclosures by publishing a proposal outlining new requirements for premium listed issuers.
”The new rule will require all commercial companies with a premium listing to either make climate related disclosures consistent with the approach set out by the Taskforce on Climate-related Financial Disclosures (TCFD) or explain why not,” the FCA said.
The authority said it would consider consulting on extending this rule to a wider scope of issuers.
The proposals set out in a consultation paper build upon the guidance of the TCFD, an existing global standard, which saw its final recommendations released in June 2017.
In July the government announced it expected large asset owners and listed companies to report on climate change risk in line with recommendations from the TCFD by 2022.
The FCA is also seeking feedback on clarifications to how existing requirements applicable to all listed companies already require climate- and other sustainability-related disclosure.
“The FCA recognises that standards for disclosure and companies understanding of the financial impacts of climate change are evolving. For this reason, where companies are not yet able to make full disclosures, they should provide an explanation of the reasons why,” the regulator said.
Andrew Bailey, FCA chief executive officer, said: “The changes we propose will help to provide the transparency the market needs to be able to assess how well companies are adjusting to the risks of climate change.”
“The changes we propose will help to provide the transparency the market needs to be able to assess how well companies are adjusting to the risks of climate change”
Andrew Bailey, FCA chief executive office
He added that improved disclosures will “support better asset pricing and enable investors to make more informed choices about where to allocate their capital”. This will ultimately support the transition to a low carbon economy, he continued.
Andrew Ninian, director of stewardship and corporate governance at the Investment Association (IA), said: “We welcome the proposals from the FCA, which will require companies to report on climate-related risks in a clear and comparable manner, in line with the Task Force for Climate-related Financial Disclosures by 2022.
“Our industry is looking to the UK’s largest listed companies to demonstrate that climate change is being taken seriously in boardrooms and to start reporting on these risks now. Climate change could result in a significant loss of value in companies if risks are not effectively measured and managed.”
The work of the Climate Financial Risk Forum – an industry group the FCA launched with the Bank of England’s Prudential Regulation Authority in March last year – will also help to build disclosure capabilities.
The forum will soon publish industry guidance, covering climate-related disclosures, risk management, scenario analysis and innovation. These guidance materials are also grounded in the TCFD’s recommendations and will complement the proposed new rule, the FCA said.
The FCA is also considering how best to enhance climate-related disclosures by regulated firms, including asset managers and life insurers, to ensure a coordinated approach.
Daniel Wiseman, a lawyer at ClientEarth, said: “Markets, investors and consumers urgently want clarity on what businesses are doing to tackle climate change and align their business with the Paris Agreement goals.
“The FCA should just make the TCFD recommendations mandatory for all listed companies. This would be much cleaner and simpler and provide the certainty that companies and investors need to run their businesses effectively.”
The organisation is working closely with the UK government and other regulators, including through a taskforce established by the treasury under the government’s Green Finance strategy. The consultation period closes on 5 June.