UK FCA sets out its findings and next steps for climate disclosures by asset managers, life insurers and regulated pension providers

The UK Financial Conduct Authority (FCA) has set outs its findings and next steps following a review into asset managers, life insurers and regulated pension providers' climate disclosures.

The FCA finalised rules in 2021 requiring firms to make climate-related disclosures in line with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations. Since then, certain firms have also been required to report under the FCA's Sustainability Disclosure Requirements (SDR) regime.

The regulator reviewed a sample of 10 TCFD entity reports and 77 TCFD product reports and engaged with trade associations and seven firms on the scope of the rules.

Review findings

The FCA's main findings were:

Risk management — The rules have helped firms treat climate change as a significant risk, improve their capabilities, and be more transparent with clients about climate risk management.

Audience — Detailed climate disclosures are useful for institutional investors but often too complex for retail investors, leading to limited retail engagement.

Accessibility — Entity-level reports are easy to find, but product-level reports are harder to access, which may reduce retail investor engagement.

Data — Firms can report historical data like emissions, but struggle with forward-looking data such as scenario analysis, limiting report comparability.

Proportionality — Firms find the TCFD rules too detailed and overlapping with other regimes, suggesting disclosures should be simplified.

Regulatory clarity — Firms want clarity on the future of TCFD rules and encourage alignment with international standards for practicality and consistency.

Next steps

In response, the FCA has updated its SDR webpage to clarify how firms in-scope of both the SDR and TCFD reporting rules can report efficiently under both regimes. This includes an explanation of how SDR and TCFD reporting periods can be aligned.

The FCA has also said that it is considering how to streamline and enhance sustainability reporting. The outcomes it intends to achieve are:

• Simplifying disclosures and easing unnecessary burdens.
• Maintaining good outcomes for clients and improving the decision-usefulness of reporting.
• Promoting international alignment and maintaining the UK's position as a leader in sustainable finance.

The FCA has said that it will consider sustainability reporting, including the UK's endorsement of International Sustainability Standards Board (ISSB) standards, and developments on transition plans.

This article was previously published by Reuters Regulatory Intelligence.