Integrating environmental sustainability disclosures into the financial services sector

The context

In November 2020, the UK’s Chancellor of the Exchequer, Rishi Sunak announced the UK’s ambition to become the first country in the world to make the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) fully mandatory across the economy by 2025.

In support of the UK Government’s plans, on 22 June 2021, the Financial Conduct Authority (FCA), launched a consultation on its proposed climate-related disclosure obligations for asset managers, including private equity firms engaged in asset management activities, and asset owners, including life insurers and non-insurer FCA-regulated pension providers.

The obligations will be contained in a new Environmental, Social and Governance (ESG) Sourcebook within the existing FCA Handbook and are expected to apply to asset managers or owners with £5 billion or more in assets under management (AUM). The FCA intends the ESG Sourcebook requirements to be effective for the largest asset managers and owners from 1 January 2022, and for remaining asset managers and owners from 1 January 2023.

The detail

The proposals envisage the disclosure of ‘entity-level’ and ‘product-level’ information.  

  1. Proposed entity-level disclosures

At the entity level, in-scope firms would need to disclose their approach to climate-related scenario analysis. They would also be expected to publish a TCFD report on an annual basis explaining how they take climate-related risks and opportunities into account when managing and administering investments.

The FCA proposes that the TCFD reports will be largely principles-based, as per the TCFD recommendations.   Disclosures at the group company level, consolidated disclosures and TCFD reports which cross-reference other disclosures/published information are also likely to be permitted. 

TCFD reports must be in a prominent place on the firms’ websites and cover all assets which they manage.  The proposals state that the TCFD report should be accompanied by a statement confirming that the disclosures comply with the relevant chapter of the FCA Handbook and should be signed by a member of the firms’ senior management.

2. Proposed product-level disclosures

The FCA is proposing that in-scope firms publish a minimum baseline set of consistent, comparable disclosures in respect of their products and portfolios as well as a core set of metrics. These metrics would cover areas including greenhouse gas emissions, carbon emissions and carbon footprint. Additional metrics, including the assessment of the potential future impact of a product’s or portfolio’s climate exposure, should be applied on a ‘best efforts’ basis. 

The disclosures would be contained in a TCFD product report which should be made available in a prominent place on the firms’ websites. Such information would also need to be included in the firms’ client communications following the annual 30 June deadline. For managers of discretionary portfolios for individuals or institutional investors, the TCFD product report would instead be made available on request once a year.  

The FCA acknowledges that firms may face challenges with their disclosure obligations, particularly where the availability of certain climate-related data is limited. The FCA therefore proposes to permit firms to use proxy data, to make assumptions, and identify where they have done so. In addition, where firms state that they plan to achieve a particular climate-related target at a product level, the FCA proposes that firms disclose key performance indicators used to measure progress against such targets.

With regards to FCA-regulated pension providers, the FCA acknowledges that beneficiaries may not select specific funds but may instead opt for a pre-selected investment portfolio. The FCA envisages that asset owners of such portfolios should disclose metrics relating to such pre-set strategies (e.g. metrics relating to default pension arrangements and investment pathways in drawdown pension products).

What this means for you

The FCA’s proposed disclosure obligations represent a significant step towards the integration of ESG factors into investment decisions and supports the flow of clear and consistent information on climate-related risk along the investment chain. Unlike the EU’s Regulation 2019/2088 (the SFDR) which focuses on a wide range of ESG-related disclosures, the proposals currently only focus on disclosures relating to the environment. The FCA has, however, stated its intention to introduce further ESG-related topics to the ESG Sourcebook over time.  

We recommend that in-scope firms keep up-to-date with ESG-related regulatory developments in the EU, which may provide an indication of the further additions to the ESG Sourcebook we can expect in the UK context.

The deadline for stakeholder responses to the consultation is 10 September 2021.

By way of its call for evidence from March to June 2021, the Department for Work and Pensions sought views on how pension scheme trustees understand social factors and how they are included in their Environmental, Social and Governance (ESG) policies. Our securities litigation team’s response to the call for evidence is summarised here.

Contact us

For further information on the FCA’s proposals and their potential impact on your firm, please contact Chris Finney at


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