While the push for global climate disclosure standards has seemingly run aground in the face of U.S. opposition, the UK’s Financial Conduct Authority (FCA) is pressing ahead with planned consultations on disclosure standards for listed companies, and work on enhancing reporting requirements for asset managers and other firms.
In late June, the U.K. government, which is responsible for deciding whether to adopt global standards, launched a series of consultations on proposed sustainability-reporting standards.
In light of those ongoing consultations, which run until mid-September, the FCA will be undertaking its own consultation later this year that will look at public companies adopting these standards — although the government needs to finalize its standards before the FCA can settle on rules for issuers.
“This will also include our proposed approach to the disclosure of transition plans,” the regulator noted.
At the same time, the FCA said that it’s also starting work on streamlining and improving its existing sustainability reporting requirements for asset managers, life insurers and pension providers.
In 2021, the FCA adopted climate disclosure requirements for these firms based on the recommendations developed by the global Taskforce on Climate-related Financial Disclosures (TCFD). On Wednesday, the regulator published the results of a review of that reporting.
“Overall, we found that our rules have increased firms’ consideration of climate risks and supported their integration into firms’ decision-making. Firms were more transparent with their clients and consumers but encountered some challenges with the availability of data and consistent, well-developed methodologies,” the regulator’s report said.
In particular, while firms were generally able to report on data, such as carbon emissions, they found it more difficult to come up with hard data to, “support forward-looking disclosures, such as scenario analysis,” the review found.
This limited the availability of these sorts of disclosures and prevented comparisons between funds, the report noted.
Additionally, the review found that firms deemed some information, “too complex for retail investors,” and called for the regime to be streamlined to require less granular reporting.
Asset managers in particularly found the reporting requirements to be too detailed, and they suggested that sustainability disclosures could be simplified and streamlined, the FCA said.
The report noted that some firms said that, while detailed climate disclosure information is helpful for institutional investors, they don’t get much response from retail investors on their TCFD reports.
The FCA also noted that these reports can be difficult to find on firms’ websites, which, it said, “may have contributed to the lower levels of engagement at product level by retail investors.”
Based on the findings of the review, the FCA said that it’s now looking at how to streamline and enhance the sustainability reporting rules.
Among other things, it wants to simplify the disclosure requirements and ease unnecessary compliance burdens on firms — while improving the “decision-usefulness of reporting” for investors, and reducing the risk of greenwashing.