FCA plans to scrap product-level TCFD reporting
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The Financial Conduct Authority is consulting on removing Task Force on Climate-related Financial Disclosures reporting requirements for products in favour of simpler information in line with the Consumer Duty, while pension trustees could get climate data from managers on request. The consultation closes on 13 July.
The FCA said the TCFD product reports, introduced in 2021, are not widely used and create cost for firms. Instead, under the proposals published on Friday, institutional investors could get emissions data from asset managers on request, while retail clients would receive information on how material climate risks could affect a product’s financial performance. The regulator aims to finalise and implement the changes later this year.
Michelle Beck, director of wholesale buy-side at the FCA, said: “These proposals will make it easier for firms to communicate with their customers in ways that genuinely inform and engage them.”
Pension trustees told the FCA that while they need some data within the TCFD product reports for their own climate reporting, they tend to ask asset managers directly, rather than relying on public reports, as this better meets their information needs. Firms said they are willing to provide institutional clients with the data when asked, given the commercial incentives to do so.
The FCA is proposing that asset managers, when asked by institutional investors to provide data they need for their own reporting, must at a minimum provide data on scope 1, 2 and 3 greenhouse gas emissions. This on-request information has to be provided no more than once per calendar year, per product.
For retail investors, firms do not need to disclose climate information for every product, including within the product summary; instead, the new rule would only require disclosure if the firm believes climate risks or opportunities are “materially relevant to the financial performance or returns of the product”. Pension products will not have to produce a product summary, with the FCA saying firms have flexibility to include climate information in other, general investment communications to retail investors.
Firms told the FCA that TCFD reporting has been helpful for raising awareness of climate risks in the market, but they did not think product-level TCFD reporting is a useful climate risk management tool, since they have “their own ways” of identifying and monitoring climate risks.
Cost is a factor, the FCA admitted, as it said that “firms encouraged us to consider international competitiveness given the cost of producing the reports and that investment products domiciled in other jurisdictions are not subject to these requirements”.
It estimates the proposed simpler reporting rules could save managers about £20m a year, based on analysis of industry feedback. Asset managers are still subject to Sustainability Disclosure Requirements.
The FCA wants to hear views from asset managers, asset owners, trade bodies and consumer groups “to make sure the proposed rules work in practice and support growth”.
The Investment Association welcomed the consultation. "Sustainability reporting frameworks should prioritise decision-useful disclosures that enables informed choices for investors and stakeholders, while also reducing unnecessary operational burden for asset managers and delivering better outcomes for clients,” said Carol Thomas, director of sustainability and responsible investment.
Deon Dreyer, head of ESG advisory at consultancy Broadstone, said the proposals mark a wider shift towards more outcomes-focused regulation, with firms expected to communicate risks in a way that consumers can genuinely understand, though the challenge will be ensuring that simplification does not come at the expense of transparency.
“If implemented carefully, this could reduce unnecessary compliance costs while improving the quality of information investors use to make decisions.”
