FCA proposals to increase transparency on climate change

The FCA has announced proposals to increase transparency on climate change risks for premium listed companies. 

The proposed new rule would require all commercial companies with a premium listing to either make climate-related disclosures as outlined by the Taskforce on Climate-related Financial Disclosures, or to explain why they have failed to do so.

The FCA says the changes will provide the transparency the market needs to assess how well companies are adjusting to mitigate climate change risks. Andrew Bailey, FCA chief executive, said: “Improved disclosures will support better asset pricing and enable investors to make more informed choices about where to allocate their capital – which will ultimately support the transition to a low carbon economy.”

The proposals are evidence of an inevitable sea change in the regulatory landscape as a result of climate-related issues. If implemented, they mean an increased regulatory burden for firms in areas which are already difficult to quantify. 

The current proposals focus on the firm’s disclosures on its exposures, but I’ve no doubt we can expect they will expand to include disclosures around exposures arising from its business. Recent demonstrations by Greenpeace closed down 100 branches of Barclays earlier this month - not the first example of business disruption of this kind, and certainly not the last. As the exposures become increasingly complex, so too will the regulation. 

As scrupulous as they may seem to those who will be tasked with adhering to them, many environmentalists argue the new (proposed) rules simply aren’t enough to have real impact and contain too many loopholes for large firms hell-bent on avoiding these kinds of disclosures. So it looks to be another rapidly evolving area of regulatory risk. 

Have you read the proposals? What impact do you feel they will have on the transition to a low carbon economy? Are firms ready and equipped for regulatory developments linked to climate change? Share your thoughts below. 

For more on this issue and other major challenges facing firms right now, download our latest industry trends report, Key Business Concerns for 2020 and beyond.