FCA climate rules increased firms’ consideration of climate risks and transparency but revealed challenges with data availability, proportionality, and retail engagement.
Firms found TCFD-aligned disclosures helpful for institutional investors but overly complex for retail audiences, with product-level reports often hard to access.
FCA plans to streamline reporting by aligning with ISSB standards, simplifying requirements, and supporting international consistency.
In 2021, the Financial Conduct Authority (FCA) finalized climate disclosure rules for asset managers, life insurers, and FCA-regulated pension providers, requiring firms to report in line with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations.
In 2023, the Financial Stability Board announced that the TCFD’s work had been completed, with the International Sustainability Standards Board (ISSB) Standards fully incorporating its recommendations. Having fulfilled its remit, the TCFD has now been disbanded.
The FCA conducted a review of how its rules have been working and firms’ views on the regime. It reviewed a sample of 10 TCFD entity reports and 77 TCFD product reports from 8 of the same entities. The FCA also engaged with trade associations and 7 firms in scope of the TCFD rules.
Overall, the FCA found that its rules have increased firms’ consideration of climate risks and supported their integration into decision-making. Firms were more transparent with clients and consumers but encountered challenges with data availability and consistent, well-developed methodologies. They also found some information too complex for retail investors and suggested the regime could be less granular and more proportionate. Opportunities were identified to simplify reporting, particularly given broader sustainability disclosure obligations.
Specifically, the FCA 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 the FCA 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 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 the FCA’s 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. They asked the FCA to clarify the future of its TCFD rules and encouraged the regulator to consider international consistency while working with industry to develop a future regime which is practical for firms.
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Next steps
The FCA has updated its sustainability reporting requirements webpage to clarify how firms in scope of both the TCFD and Sustainability Disclosure Requirements (SDR) rules can report efficiently under both regimes.
In light of the findings, the FCA is also considering how to streamline and enhance its sustainability reporting framework. It aims 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 described as a natural progression in sustainability reporting and reflects the FCA’s priorities to support growth and be a smarter regulator. It also supports broader efforts to streamline the regulatory regime for asset managers.
As the work moves forward, the FCA 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. The FCA will continue to work closely with the Government and regulatory counterparts to support consistent outcomes along the investment chain.
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