Climate change and sustainable finance

Climate change and sustainability are increasingly affecting listed companies, regulated firms and consumers. Find out more about our sustainable finance strategy.

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.  

Our sustainable finance strategy is based on 3 themes. These reflect the priorities set out in our feedback statement FS19/6

  • Transparency: Promoting good disclosures along the investment chain. 
  • Trust: Ensuring that the market delivers sustainable finance instruments and products that genuinely meet investors’ sustainability preferences.  
  • Tools: Government, regulators and industry all working together to share experience, develop guidance and tools, and provide mutual support as we address the challenges of climate change.  

The Chancellor’s remit letter to us in March 2021 stated that we should consider the Government’s commitment to achieve a net-zero economy by 2050 when we work to advance our objectives and perform our functions as a regulator.  

We will therefore continue to broaden and deepen our sustainable finance strategy. 

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:  

  • governance 
  • strategy 
  • risk management 
  • metrics and targets 

The Government endorsed the TCFD’s recommendations in 2017 and made their implementation a central part of the 2019 Green Finance Strategy.  

In November 2020, a cross-Whitehall and regulator taskforce (including the FCA) published an Interim Report and Roadmap, setting out a strategy towards mandatory TCFD-aligned disclosures across the UK by 2025. This includes our work on TCFD-aligned disclosures by listed issuers and asset managers, life insurers and FCA-regulated pension funds. 

Find out more about climate-related reporting requirements for firms

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.  

It has also published a number of guides, developed by industry for industry use, covering topics such as disclosure, scenario analysis, risk management and innovation.  

Investor stewardship 

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. 

In June 2019, we implemented new rules on shareholder engagement in line with the revised Shareholder Rights Directive (PS19/13). We also set new duties for Independent Governance Committees to consider and report on their firms’ policies on environmental, social and governance (ESG) matters and stewardship (PS19/30).  

In January 2019, we published a discussion paper (DP19/1) with the Financial Reporting Council (FRC) on the regulatory framework for effective stewardship. We set out our conclusions in a later feedback statement (FS19/7), which was published alongside the FRC’s revised UK Stewardship Code 2020.  

We will continue to work closely with the FRC, other regulators and industry as firms continue to develop their stewardship strategies. 

Our international work  

Sustainable finance features prominently in regulatory initiatives internationally.  

Sharing knowledge is important as approaches to sustainable finance develop. As such, we work with regulators across a range of countries, to collaborate and share experiences. 

We are a member of the Sustainable Finance Taskforce (STF) under the International Organization of Securities Commissions (IOSCO) and co-chair the workstream on issuers’ sustainability disclosures.  

This workstream is collaborating closely with the IFRS Foundation, which is working towards establishing a Sustainability Standards Board to develop a corporate reporting standard on sustainability.  

The STF work also aims to improve asset managers’ sustainability disclosures and investor protection, as well as considering the role of the ESG rating and data providers.