Climate change and other environmental, social and governance (ESG) matters are increasingly central to the activities of listed companies, regulated firms and consumers. Find out more about our work on ESG.
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Financial services and markets have an important role to play in the transition to a more sustainable future. The pressure is also increasing on business to be more purposeful and responsible.
We aim to make sure that our regulatory approach creates an environment in which market participants can manage the risks from moving to a more sustainable economy and capture opportunities to benefit consumers.
- Transparency – promoting transparency on climate change and wider sustainability along the value chain
- Trust – building trust and integrity in ESG-labelled instruments, products and the supporting ecosystem
- Tools – working with others to enhance industry capabilities and support firms’ management of climate-related and wider sustainability risks, opportunities and impacts
- Transition – supporting the role of finance in delivering a market-led transition to a more sustainable economy
- Team – developing strategies, organisational structures, resources and tools to support the integration of ESG into our activities
The Chancellor’s remit letter to us in December 2022 stated that we should consider the Government’s ambitions for the provision of sustainable finance when we work to advance our objectives and perform our functions as a regulator. Our strategy sets out the key actions we are taking.
To assist us with our work, the FCA’s Board is advised on ESG issues by its ESG Advisory Committee, made up largely of external subject-matter experts. The ESG Advisory Committee’s terms of reference can be found here. More information on the FCA Board can be found here.
Read more about our work so far.
Task Force on Climate-related Financial Disclosures (TCFD)
The TCFD was set up by the Financial Stability Board in 2015 to identify the market’s climate-related information needs and develop a set of climate-related disclosure recommendations.
The TCFD’s final report, published in June 2017, sets out 11 recommended disclosures under 4 pillars:
- risk management
- metrics and targets
In December 2020 we finalised new disclosure rules for companies with a UK premium listing and, in December 2021, we:
- extended the application of our TCFD-aligned Listing Rule for premium-listed commercial companies to a wider scope of listed issuers
- introduced TCFD-aligned disclosure requirements for asset managers and asset owners (including life insurers and FCA-regulated pension providers)
In July 2022, we published our review of the first TCFD-aligned disclosures by premium-listed commercial companies. At the end of 2022 in Primary Market Bulletin 42, we reminded companies of our rules, guidance and expectations, ahead of the first mandatory disclosures by standard listed companies.
In 2022, we published our own TCFD-aligned climate-related financial disclosures for the first time, alongside our annual report.
Find out more about climate-related reporting requirements for listed companies and financial services firms.
International reporting standards
We have been influencing international efforts towards a common international corporate reporting standard for sustainability disclosures.
To make sure we leverage existing industry capabilities, we’re promoting a solution that builds on the TCFD’s recommendations and other existing frameworks.
We co-chair a workstream on sustainability reporting under the International Organization of Securities Commissions' (IOSCO) Sustainable Finance Taskforce. In a report released in June 2021, IOSCO set out the outcomes of this work so far. The report elaborated on IOSCO’s vision for an International Sustainability Standards Board (ISSB) to sit alongside the International Accounting Standards Board under the International Financial Reporting Standards (IFRS) Foundation.
Consistent with this vision, the IFRS Foundation launched the ISSB at the United Nations Climate Change Conference (COP26). This is a significant development. It's the first step towards developing a global baseline corporate reporting standard on climate change and sustainability matters, integrated with financial reporting standards under the IFRS Foundation’s robust governance structure.
When the ISSB was first proposed by the IFRS Foundation in 2020, we responded to the consultation supporting the initiative and also issued a supportive joint statement along with the Government and other UK financial regulators.
Jointly with other UK authorities, we are committed to adopting the ISSB’s standards. The Government's Roadmap to Sustainable Investing confirmed that the ISSB's standards would form the 'backbone' of whole-of-economy Sustainability Disclosure Requirements (see 'Trust'). We will work with the Financial Reporting Council (FRC) and others to establish and implement an appropriate oversight and enforcement mechanism for disclosures against the new standards.
In March 2022, the ISSB published for comment proposals for General Sustainability-related Disclosure Requirements and Climate-related Disclosure Requirements. We have submitted a response to the ISSB’s consultation, welcoming the proposals. Our response evaluates the proposals against a set of criteria relevant to our target outcome of high-quality climate- and sustainability-related disclosures. We confirm that the proposed standards generally meet our expectations and we consider they will help to enhance market quality and integrity.
We also co-chair IOSCO’s workstream on assurance of sustainability-related corporate disclosures.
We welcome the report published in March 2023, which elaborates on IOSCO’s support for the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants’ (IESBA) work to develop a global assurance framework by the end-2024 reporting period, without compromising quality. The report sets out considerations for the standard setters and stakeholders across the ecosystem (focusing on issuers and assurance providers) as the work progresses. This includes early engagement with the standard setters’ initiatives and capacity building.
ISSB Consultation on Agenda Priorities: FCA response
In May 2023, the ISSB issued a consultation seeking feedback on its priorities for its next two-year work plan following the publication of the first two standards (IFRS S1 and IFRS S2).
Our response recommends that the strategic direction of the ISSB’s work should focus on embedding these first two standards, while also launching a comprehensive work programme to develop a suite of investor-material sustainability-related disclosure standards beyond climate.
We also encourage the ISSB to begin work towards a thematic standard on nature, leveraging the final recommendations and framework of the Taskforce on Nature-related Financial Disclosures (TNFD).
Sustainability Disclosure Requirements (SDR) and sustainable investment labels
On 25 October 2022, we published proposals for SDR and investment labels, initially applying to asset managers in respect of their UK fund products and portfolio management. We intend to expand the regime over time.
Our proposals aim to build trust in the market for sustainable investment products, and help combat potential 'greenwashing' by requiring firms to back up the sustainability claims they make.
The package of measures includes a labelling regime to help consumers navigate the increasingly complex sustainable investment product landscape, and naming and marketing rules that restrict the use of certain climate- or sustainability-related terms where a product does not meet the criteria to qualify for a label.
We are also proposing 2 layers of disclosure:
- a concise and accessible consumer-facing layer of disclosure – informed by behavioural research – that includes key sustainability-related information to help consumers make informed decisions
- more detailed underlying entity-and product-level disclosures, aimed primarily at institutional investors and other stakeholders and building from our TCFD-aligned disclosure requirements
The proposals also build on the Guiding Principles that we developed and included in a letter to the chairs of authorised fund managers (AFMs) in July 2021. The Guiding Principles aim to help clarify our expectations for the design, delivery and disclosure of retail responsible and sustainable funds, both as applications are submitted for authorisation and on an ongoing basis. They were informed by consumer behavioural research, also published in July 2021, on how consumers approach their investment decisions in this space.
The proposals for SDR and labels have been informed by several other inputs. In November 2021, we published a Discussion Paper on SDR and investment labels (DP21/4), and received broadly positive feedback on key policy design issues.
Alongside the DP, we established a Disclosures and Labels Advisory Group (DLAG) composed of industry experts and consumer representatives. The group gave us feedback, technical advice and constructive challenge as our work developed. Find out more under the Terms of Reference.
We also carried out several rounds of consumer behavioural research on the consumer-facing disclosures – including the labels – to inform our final proposals. The findings are published in Occasional Paper 62, and summarised in the CP.
ESG integration in capital markets
We took the opportunity in our consultation on TCFD-aligned disclosures (CP21/18) to gather views on select ESG topics in capital markets, focussing on two active areas of debate: how to build trust in green and other ESG-labelled debt instruments; and the case for regulation of ESG data and rating providers. In June 2022, we published a Feedback Statement bringing together respondents’ views, clarifying our expectations and setting out our potential next steps.
Market participants must be able to trust the claims made by issuers regarding the sustainability characteristics of green and other ESG-labelled financial instruments, and rely on them to perform as they expect. Primary Market Bulletin 41 – published alongside our Feedback Statement – elaborates on our response to feedback, encouraging issuers of ESG-labelled bonds to consider relevant industry standards and reminding them of their obligations in relation to advertisements.
As industry participants more fully integrate ESG into their activities and expand their ESG-focused product offerings, they are increasingly reliant on third-party ESG data and ratings services. The Government noted, in its Roadmap to Sustainable Investing, that ‘it is important that providers deliver ESG data and ratings transparently, and that they have strong governance and management of conflicts of interests’.
As set out in FS22/4, we see a clear rationale for regulatory oversight of certain ESG data and ratings providers. We are working closely with the Government as it consults on a potential regulatory regime for ESG ratings providers. In 2021, we contributed to IOSCO’s recommendations to both regulators and ESG data and ratings providers. We see IOSCO’s recommendations as a sound basis for a globally consistent regulatory approach.
Should the Government decide the FCA should regulate these firms, introducing a regulatory regime would take time. To maintain momentum, and help raise standards in the interim, we have worked to convene, support, and encourage industry participants to develop and follow a voluntary Code of Conduct. The International Capital Market Association (ICMA) and the International Regulatory Strategy Group (IRSG) are acting as the Secretariat leading this work. They have convened an independent group to develop the Code. Consistent with our objectives, the FCA sits as active observers to this group, alongside the Treasury and other relevant financial regulators. Read the group's Terms of Reference.
Industry-led solutions will help support the aims of the FCA’s ESG Strategy, by helping to promote more rapid development of best practice, in advance of potential regulation. The Code will seek to be internationally consistent, by taking into account not only IOSCO’s recommendations but also developments in other jurisdictions. The Code could also continue to apply for ESG data and ratings providers that fall outside the scope of potential future regulation.
Climate Financial Risk Forum
In 2019, we established the Climate Financial Risk Forum (CFRF) with the Prudential Regulation Authority (PRA).
The CFRF brings together senior financial sector representatives to share their experiences in managing climate-related risks and opportunities, and helps build capabilities and capacity across the industry.
In December 2022, the CFRF published its third round of guides to help the financial sector develop its approach to addressing climate-related financial risks and opportunities. Written by industry, for industry, this round of guides build on the CFRF’s previous publications, and aims to continue to contribute to the development of effective practice.
We are undertaking a programme of work using our innovation services to assist firms and regulators to overcome some of the challenges that the transition to net zero will raise, by supporting the development of new approaches and solutions in the area of sustainability and climate change.
- Global Financial Innovation Network (GFIN): The GFIN is a collaborative knowledge and policy sharing network aimed at advancing effective regulatory responses to the use of emerging and more traditional technologies in financial services. The GFIN is overseen by the Coordination Group, made up of GFIN Members, which sets the overall direction, strategy and annual work programme of the GFIN. The coordination group is chaired by the FCA.
- Second Digital Sandbox pilot: an 8 to 10 week programme to provide support to start-ups and innovators in developing and validating working proofs of concept to improve the transparency of ESG-related market disclosures and consumer understanding of the ESG characteristics of the products and providers they are engaging with. Read more about the key lessons learned in our evaluation report.
We support the Government’s direction of travel towards requiring the disclosure of net zero transition plans across the UK economy. We have a role to play in delivering on that ambition.
We integrated guidance on transition planning, published by the TCFD in October 2021 into our final TCFD-aligned disclosure rules for listed issuers and regulated firms. We engaged with stakeholders in the first half of 2022 to consider how best to build on this guidance, with a view to promoting credible and effective transition plans that consider the Government’s net zero commitments.
At COP26, the Government announced that the UK will be the world's first net zero-aligned financial centre. The UK will move towards making it mandatory for institutions across the financial sector to publish robust firm-level transition plans that set out how they will decarbonise as the UK meets its net zero targets.
The Treasury then launched the UK Transition Plan Taskforce (TPT) in April 2022 to develop the 'gold standard' for private sector transition plans in the UK. We have been actively involved in the development of the Taskforce’s Disclosure Framework and accompanying Implementation Guidance, co-chairing its workstream on user and preparer guidance. The Taskforce has also launched a Sandbox for companies and financial institutions to test implementation.
The Guidance is currently under consultation, and we will ultimately draw on the TPT’s final outputs to strengthen our disclosure expectations of listed companies and regulated firms.
Stewardship by asset owners and asset managers involves making informed decisions about where to invest, and proactive oversight of assets once invested.
Active investor stewardship is, therefore, an important tool to support an effective transition to a net zero economy, and to promote wider sustainability objectives.
We have been considering how investor engagement and the exercise of existing shareholder rights, such as shareholder resolutions and voting against directors, can be used more effectively to encourage positive ESG outcomes.
Through exercising stewardship and challenging issuers’ strategies and decisions, asset owners and their asset managers can improve issuers’ understanding of their interests and influence corporate strategy to further those interests. In Primary Market Bulletin 42, the FCA clarified its position that Market Abuse Regulation (MAR) is not intended to inhibit or stifle high quality engagement with shareholders.
In Spring 2022 the FCA and FRC jointly held a series of workshops with issuers, investors, service providers and wider stakeholders to consider how shareholder rights could be used more effectively on climate-related issues. Findings from the workshops have been used to feed into the Transition Plan Taskforce’s work to develop a transition plan framework, and associated user and preparer guidance.
Vote Reporting Group
The Vote Reporting Group was set up in November 2022 to develop detailed proposals to enhance shareholder vote reporting by asset managers operating in the UK.
The aim is to design a comprehensive and standardised vote reporting framework for public consultation in mid-2023.
The group has members across the investment community, invited through their representative organisations. They include investment managers, pension funds, insurers, companies, investment consultants, proxy advisers and non-governmental organisations, with the FCA acting as the group secretariat.
More information about the Group can be found here.
Green Home Finance
The FCA convened a workshop in December 2022 to explore how green home finance can help lenders deliver their net zero targets, while also incentivising borrowers to retrofit energy efficiency measures in their homes. Attendees included delegates from the largest UK mortgage lenders by market share, as well as relevant trade bodies, Government departments, the Bank of England and leading environmental organisations.
The workshop explored a range of themes, including the need for decarbonisation of the UK’s mortgaged housing stock, perceived constraints on the demand for energy efficiency improvements, and the risk that net zero carbon emission targets may be missed unless the mortgage lenders’ net zero strategies include decarbonisation of housing stock as a primary focus (Emissions from mortgaged homes are estimated to account for 80% of mortgage lenders’ total emissions).
Embedding ESG across the FCA
We are working to integrate ESG considerations across our functions, and are taking steps to embed net zero and wider ESG considerations in all our policy work, as well as our market oversight, supervision, authorisations and enforcement activities.
Reflecting the scale and urgency of the climate challenge and the government’s ambition for the provision of sustainable finance, climate change will remain a priority. However, we are working to make sure that, as an organisation, we keep pace with the integration of wider environmental and social considerations in economic and financial decisions and financial instruments, products and services.
This will include, for example:
- Setting ESG-related expectations at the authorisations gateway.
- Incorporating ESG-related questions and criteria in supervisory. assessments and engagements to ensure that firms’ ESG performance is being monitored and reviewed as appropriate.
- Building ESG-related elements into enforcement models to develop regulatory approaches to tackling ESG-related breaches of rules.