FCA To Streamline Climate Disclosure Rules

In a changing landscape of sustainable finance, the UK’s Financial Conduct Authority (FCA) is preparing to simplify its climate-related disclosure rules after looking at how firms have responded to current requirements. This decision follows feedback from asset managers, life insurers, and pension providers, who pointed out both progress and challenges in applying the existing rules.

The FCA's climate disclosure rules, finalised in 2021, required firms to report according to the Taskforce on Climate-related Financial Disclosures (TCFD). These rules aimed to improve transparency around climate risks and opportunities. They encouraged firms to include these factors in their strategies and decision-making. However, the regulatory landscape is changing. In 2023, the Financial Stability Board announced that the TCFD had completed its mission, with its recommendations now incorporated into the International Sustainability Standards Board (ISSB) framework. Consequently, the TCFD has been disbanded.

To evaluate the effectiveness of its rules and guide future policy, the FCA reviewed a sample of 10 TCFD entity reports and 77 product-level reports from eight firms. It also engaged with seven regulated firms and relevant trade associations. The review found that the rules had led to better integration of climate risk into firm-level strategies and improved transparency with clients. However, it also revealed several operational and structural challenges faced by the industry.

Firms recognized that the disclosure requirements helped them see climate change as a significant risk, which encouraged them to build internal capabilities and incorporate climate-related factors into asset management practices. They reported a general positive shift toward greater openness with clients about how they manage climate risks. Yet, the detailed nature of these disclosures, while useful to institutional investors, was less accessible to retail investors.

Many firms observed that the information, especially at the product level, was too complex for retail investors to easily understand. This complexity, along with poor accessibility—product-level disclosures were often hard to find online—led to low engagement from retail investors. While institutional clients found the reports helpful for due diligence and investment choices, retail audiences struggled with the depth and format of the information.

Data availability also became a concern. Firms could generally report on historical data, such as greenhouse gas emissions. However, forward-looking reports, including scenario analysis, proved more challenging. For example, only about half of the product reports reviewed included the necessary analysis across all three climate scenarios. This limited the comparability of reports and diminished their overall usefulness for stakeholders.

Proportionality was another significant issue. Asset managers especially felt burdened by overlapping sustainability reporting rules, both international and domestic. The FCA’s TCFD requirements were seen as too detailed, and firms asked for a more simplified and unified approach. As ISSB standards become the global benchmark for climate-related disclosures, the FCA is under pressure to adjust its rules to meet international expectations while providing regulatory clarity.

In response, the FCA has begun taking steps to support dual compliance with the TCFD and the UK’s emerging Sustainability Disclosure Requirements (SDR). Its updated sustainability reporting webpage offers guidance for firms to navigate both requirements more smoothly. Looking forward, the FCA is considering a major overhaul of its sustainability reporting framework. This includes efforts to simplify the regime, lessen unnecessary burdens on firms, and enhance the usefulness of disclosures for both institutional and retail investors.

The regulator has stated that it aims to maintain favorable outcomes for consumers while increasing transparency and reducing the risk of greenwashing. At the same time, it seeks to promote international alignment and uphold the UK’s leadership in sustainable finance. The FCA views this change as a natural evolution of its regulatory approach, supporting its broader goals of smarter regulation and sustainable economic growth.

As part of this evolution, the FCA will also consider the SDR, the ongoing development of UK Sustainability Reporting Standards based on ISSB guidance, and policies on corporate transition plans. The regulator plans to maintain close collaboration with government bodies and international partners to ensure consistency throughout the investment value chain.

This strategic shift shows the FCA’s understanding that effective climate disclosure is not just about meeting requirements but about enabling informed, responsible decision-making. By addressing firms' concerns while aligning with global standards, the FCA aims to create a streamlined reporting environment that benefits investors, firms, and society.