On 16 October 2019, the Financial Conduct Authority (FCA) published a feedback statement setting out its proposals to improve climate change disclosures by issuers and information to consumers on green financial products and services. This is a response to its discussion paper, Climate Change and Green Finance ("Discussion Paper") issued in October 2018, which sought views on potential FCA action on climate change and green finance in line with the objective of ensuring relevant financial markets function well. This was covered in our Q4 2018 G&SL newsletter on page 7.
The statement sets the FCA's approach following the Discussion Paper and identifies the relevance of climate change as an issue for the financial services sector, a summary of feedback to the Discussion Paper and the FCA's responses and the FCA's actions and next steps.
The responses to the Discussion Paper include the following:
- There are significant challenges in determining the materiality of climate change risks, with investors requiring consistent, comparable and high-quality disclosures to take account of the risks.
- Respondents were generally supportive of introducing climate change disclosure requirements for regulated firms. However, proportionality was a concern, with some respondents favouring an approach proportionate to a firm's size and risk profile.
- Some respondents were concerned with the difficulty of identifying genuinely green investments and were supportive of internationally agreed standards for defining the sustainability characteristics of financial products.
- A variety of concerns were expressed by stakeholders, including the short-term results culture of finance, the absence of common standards and a lack of action from Government and regulators to incentivise actively the emergence of innovative green finance products.
In response to the feedback, the FCA intends to publish a consultation paper in early 2020 proposing new disclosure rules for certain issuers and clarify existing disclosure obligations relating to climate change risks. It also intends to publish a feedback statement on stewardship with the Financial Reporting Council, in which it will show its continued supervisory and policy interest in firms' integration of climate change risk and will set out actions to address barriers to effective stewardship. The FCA also sets out actions it intends to take in relation to expectations around green financial products and services, such as challenging firms where there is potential greenwashing and carrying out further policy analysis on greenwashing. It also intends to continue its joint work with Government, other regulators and industry.