The Financial Conduct Authority (FCA), the UK’s regulator for financial services firms and markets, has unveiled plans to refine its sustainability reporting framework for asset managers, life insurers, and pension providers. This initiative includes exploring simplification of disclosure requirements and reducing regulatory burdens on firms.
The announcement comes after the FCA conducted a review of its climate reporting rules, implemented in 2021. These rules required asset managers, life insurers, and FCA-regulated pension providers to disclose climate-related information aligned with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations. The review highlighted several positive outcomes, particularly in risk management. Firms reported that the requirements have enhanced their ability to consider climate change as a material risk, build capabilities, and integrate climate risks and opportunities into their strategies. Additionally, the rules have improved transparency with clients regarding how firms account for climate risks in asset management.
However, the review also noted challenges. While detailed climate disclosure information benefits institutional investors, some firms found the TCFD recommendations too complex for retail investors. Asset managers, in particular, expressed concerns about reporting under multiple sustainability disclosure regimes, finding the TCFD rules overly detailed and suggesting that disclosures could be simplified.
Firms also reported data challenges in meeting sustainability reporting requirements, particularly in providing quantitative data for forward-looking disclosures like scenario analysis. The FCA observed that around half of the reviewed reports did not disclose the impact of all three climate scenarios on the fund, hindering comparability between firms’ reports.
Since the FCA’s climate disclosure requirements were launched, the IFRS Foundation’s International Sustainability Standards Board (ISSB) has assumed responsibility for monitoring companies’ climate-related disclosures from the TCFD, which has been disbanded. Multiple jurisdictions are moving towards adopting the ISSB’s sustainability reporting standards within their regulatory frameworks.
The FCA’s review found that firms are seeking clarity on the future of TCFD-focused rules in light of broader ISSB standards adoption, urging the regulator to consider international consistency.
In response, the FCA is evaluating how to streamline and enhance its sustainability reporting framework. This includes simplifying disclosure requirements, reducing unnecessary burdens on firms, improving the decision-usefulness of reporting for clients and consumers, and building trust to reduce greenwashing. The FCA plans to build on its Sustainability Disclosure Requirements (SDR) regulation and promote international alignment.
The FCA stated: “As we take it forwards, we 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. We will continue to work closely with the Government and regulatory counterparts to support consistent outcomes along the investment chain.”
