Climate change disclosures – new FCA rules

The Financial Conduct Authority (FCA) has published its Policy Statement 21/24 (PS 21/24) which contains its rules on climate change disclosures. These rules affect asset managers, life insurers and FCA-regulated pension providers and requires them to make mandatory disclosures regarding how they take climate-related matters into account in their management or administration of assets on behalf of clients and consumers. PS 21/24 is published following the FCA’s earlier consultation in CP 21/17 on the topic, which you can read more about here.

The new rules support the UK’s commitment to implement the recommendations on sustainability disclosures made by the Taskforce on Climate-related Financial Disclosures (TCFD) and promotes transparency on climate change sustainability values.

The FCA s introducing a new Environmental, Social and Governance (ESG) Sourcebook to the FCA Handbook. The ESG Sourcebook sets out the rules and guidance for asset managers and certain FCA-regulated asset owners for making disclosures consistent with the TCFD’s recommendation.

The new rules apply from 1 January this year to the largest “TCFD in-scope” businesses (firms involved in core fund management and MiFID investment service providers of portfolio management).

From next year, these rules will also apply to smaller firms which are above the exemption limit of £5 billion assets under management assessed annually over a 3-year rolling period.

Firms to which these rules apply must make annual disclosures at the:

• Entity level – an entity level publication is required in a prominent place on the entity’s web-site setting out how the firm takes climate-related risks and opportunities into account when managing or administering investments on behalf of clients and consumers; and
• Product and portfolio – disclosures (including a core set of climate-change metrics) on the firm’s products and portfolios, displayed on the firm’s website and cross-referenced in appropriate client communications.

Large TCFD in-scope businesses, to which these rules apply from this year as well as those smaller firms which wish voluntarily to comply with these rules should familiarise themselves with the ESG Sourcebook and the TCFD recommendations for preparing their reports.

Those firms would be required to make their first public disclosures by 30 June 2023.

For more information or to discuss how the new disclosure rules, please contact Nigel Mills or JD Ghosh.

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