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:
- 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 providers.
Our first step was to finalise, in December 2020, new disclosure rules for companies with a UK premium listing. We are now taking further steps, consistent with the Roadmap:
- we are consulting in CP21/18 on proposals to extend the application of our TCFD-aligned Listing Rule for premium-listed commercial companies to issuers of standard listed equity shares (excluding standard listed investment entities and shell companies)
- we are consulting in CP21/17 on proposals to introduce climate-related disclosure requirements, aligned with the TCFD’s recommendations, for asset managers, life insurers, and FCA-regulated pension providers
We are inviting feedback to both consultations by 10 September 2021.
Find out more about climate-related reporting requirements for listed companies and financial services firms.
Environmental, social and governance (ESG) topics in capital markets
We're taking the opportunity in our current consultation on TCFD-aligned disclosures (CP21/18) to gather views on select ESG topics in capital markets, including on green and sustainable debt markets and the increasingly prominent role of ESG data and rating providers.
We are inviting feedback by 10 September and intend to publish a Feedback Statement in the first half of 2022.
We are undertaking a programme of work using our innovation services to assist firms and regulators to overcome some of the challenges that this transition will raise by supporting the development of new approaches and solutions in the area of sustainability and climate change.
These services allow us to engage with and support innovative solutions at various stages of their development. This includes the initial ideation and proof of concept stage through our TechSprint programme, the further development and validation of proof concepts to demonstrate market value through our Digital Sandbox pilot, and the testing of innovative propositions in the market with real consumers through our regulatory sandbox.
- Sustainability TechSprint: a 4-day regulatory hackathon, bringing together cross-organisational teams from across financial services, technology, academia and international regulators, to generate new supervisory technology (SupTech) ideas and ways of working to overcome challenges faced by regulators in monitoring ESG data and disclosure.
- 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.
- Green FinTech Challenge: a package of our firm support services to help start-ups, incumbents and technology providers navigate regulation and support live market testing of new products and services that will aid the transition to a net zero economy.
- September 2021 – Application windows for the Digital Sandbox and the Green FinTech Challenge open
- October 2021 – Sustainability TechSprint takes place
- November 2021 – Successful applicants to the second Digital Sandbox announced and onboarded
- January 2022 – The Digital Sandbox testing environment opens to participants
- Early 2022 – Successful applicants to the Green FinTech Challenge announced
ESG and sustainable investment funds
In July 2021, we published a letter to the chairs of authorised fund managers, setting out our expectations on the design, delivery and disclosure of ESG and sustainable investment funds.
The letter includes a set of guiding principles to ensure that any ESG-related claims are clear and not misleading, both at the time of application and on an ongoing basis, so that consumers can make informed choices.
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.
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 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.