How will the FCA tackle climate-change risk?

CUBE explores the Financial Conduct Authority’s proposed ‘comply or explain’ approach to climate change.

The world, for many, feels like a strange place right now, with COVID-19 touching nearly every corner of the globe – from businesses to individuals. It is with that in mind that some might seek to find the positives among the tragedy. Stories of communities coming together and neighbourly gestures have become all-important at this fragile time. Another positive can be found in the news of reduced levels of harmful emissions, as the world remains largely dormant for the time being.

It perhaps seems fitting then that the UK’s Financial Conduct Authority (FCA) has published a consultation outlining new proposals for climate-related disclosure requirements for listed companies. Under new rules, all commercial companies with a premium listing will be subject to the principal of ‘comply or explain’: either they must make climate-related disclosures set out by the Taskforce on Climate-related Financial Disclosures (TCFD) or explain why not.

The consultation paper entitled ‘Proposals to enhance climate-related disclosures by listed issuers and clarification of existing disclosure obligations (CP20/3)’, acknowledges the threat that climate change poses to many listed companies – especially with regard to the value of their assets and investments. Increasingly, investors want to ensure that they are committing money to companies and projects that will support a low-carbon economy. The FCA is moving to ensure that is viable, and that there are regulations in place to support it.

As well as setting out these new climate-focussed proposals, the FCA is seeking to better understand how existing requirements interact with climate and sustainability-related disclosure. It is further considering how to enhance climate-related disclosures by regulated firms, to ensure a consistent cross-industry approach.

The FCA’s consultation comes at a time when environmental, social and governance factors (ESGs) and sustainability take centre stage for regulators and financial institutions alike. As society’s perspective changes, banks are adapting to retain customers and investments. Barclays, for instance, has unveiled plans to reach net-zero on carbon emissions by 2050, following increasing pressure from a group of investors. Undoubtedly, they will not be the only firm to take this leap.

The FCA’s consultation closed on 1st October 2020.