Climate Disclosure Rules for Financial Institutions
The UK Financial Conduct Authority (FCA) plans to revise the climate disclosure rules for financial institutions, aiming to simplify the sustainable information disclosure framework.
The UK Financial Conduct Authority believes that the new climate disclosure rules for financial institutions will be based on the Taskforce on Climate-related Financial Disclosures (TCFD) and Sustainability Disclosure Requirements (SDR).
Related Post: Bank of England Releases Consultation Paper on Climate Risk Management in Financial Industry
Background of Climate Disclosure Rules for Financial Institutions
In 2021, the UK Financial Conduct Authority released climate disclosure rules for asset management companies, insurance companies, and pension funds, based on the TCFD recommendations. In 2023, the Financial Stability Board (FSB) dissolved TCFD, and the International Sustainability Standards Board (ISSB) released IFRS S1 and IFRS S2.
The UK Financial Conduct Authority has reviewed over 70 climate disclosure reports and found that financial institutions have performed well in terms of data transparency, but face challenges in terms of data availability and disclosure methods. Some climate information is too complex and has limited impact on investors, so there is an opportunity to simplify climate disclosure rules.
Climate Disclosure Rules for Financial Institutions Analysis
The UK Financial Conduct Authority analyzes the climate disclosure of financial institutions from the following perspectives:
- Risk management: Climate disclosure can help financial institutions identify climate change as a substantive risk and incorporate climate risks and opportunities into their business strategies.
- Audience: Although detailed climate disclosure is helpful for institutional investors, it may be too complex for individual investors, especially at the product level.
- Accessibility: Institutional level climate disclosures are relatively easy to obtain, while product level disclosures are relatively difficult.
- Data: Financial institutions typically disclose historical data such as carbon emissions, but the proportion of disclosing forward-looking data is relatively low.
- Proportionality: Financial institutions typically need to disclose information based on multiple sustainability reporting systems, which increases compliance costs.
- Regulatory clarity: As ISSB standards are applied in multiple jurisdictions, climate information disclosure based on TCFD rules may need to be updated to improve consistency.
The regulatory authority plan to revise the climate disclosure rules for financial institutions from multiple aspects such as Sustainability Disclosure Requirements, ISSB standards, and transition plans, to reduce compliance burdens and improve the usefulness of climate disclosure for investors’ decision-making.
Reference:
Climate Reporting by Asset Managers, Life Insurers and FCA-Regulated Pension Providers
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