Financial Conduct Authority to introduce landmark climate risk reporting in 2022

It plans to implement consistent climate-related disclosure requirements for asset managers and FCA-regulated pension schemes

The Financial Conduct Authority (FCA) has announced plans to introduce landmark climate risk reporting measures aligned with those proposed in the Pension Schemes Bill over the next two years.

In a letter to Pensions Minister Guy Opperman, the FCA said it intends to consult on implementing consistent climate-related disclosure requirements for asset managers and FCA-regulated pension schemes, in line with recommendations from the internationally-recognised Taskforce on Climate-related Financial Disclosures (TCFD), in the first half of 2021.

It plant to finalise the rules by the end of 2021, subject to consultation and cost-benefit analysis as required under the Financial Services and Markets Act, with new obligations coming into force in 2022.

The FCA is considering phasing the obligations, beginning with the largest or most interconnected firms.

Interim Chief Executive Christopher Woolard said: “In our 2018 discussion paper on climate change and green finance, we gathered stakeholder views on the case for TCFD-aligned disclosures by both listed companies and regulated firms. Responses were overwhelmingly in favour of introducing requirements to make such disclosures.

“We expect to do further work to adopt the TCFD’s recommendations more widely within our rules, including as they apply to asset managers and contract-based pension schemes, in coordination with the Taskforce.”

The news to introduce the measures comes as climate change is expected to have a significant impact on pension schemes’ assets and returns for savers, both through the risks of a warmer planet and the transition to a lower carbon economy.

Mr Opperman welcomed the plans, stating: “I whole-heartedly welcome the steps outlined by the FCA to ensure climate reporting requirements are rolled out across its regulated community. The FCA’s commitment highlights the co-ordinated approach we are taking the address the dangers of climate change, while also using it to seize green opportunities.

“The UK was the first major economy to commit to reaching net zero by 2050 and it is vital we continue to build on this momentum.”

The Department for Work and Pensions’ ongoing consultation to improve the governance and reporting by occupational pension schemes proposes a wide range of measures to introduce this.

Activities include calculating the carbon footprint of pension schemes and assessing how the value of the schemes’ assets or liabilities would be affected by different temperature rise scenarios – including the ambitions on limiting the global average temperature rise set out in the Paris Agreement.

The Pension Schemes Bill, set for Second Reading on 7th October 2020, contains the legislation necessary to enact these measures.

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