UK FCA findings on climate reporting under the TCFD regime

The UK Financial Conduct Authority (FCA) has published the findings from its multi-firm review of climate reporting by asset managers, life insurers and FCA-regulated pension providers under the Taskforce on Climate-related Financial Disclosures (TCFD) regime. The review found that the rules have strengthened firms' consideration of climate risks and improved transparency, but challenges remain around data availability and consistent, well-developed methodologies. Firms reported that while the disclosures are useful for institutional investors, they are often too complex for retail investors, particularly at the product level, where reports were also harder to find. Most firms were generally able to report on backward-looking data, such as carbon emissions, but struggled with providing quantitative data to support forward-looking disclosures like scenario analysis, limiting comparability between reports. Asset managers, in particular, viewed the rules as overly granular given their broader, overlapping sustainability disclosure obligations and called for simplification of the requirements. Firms also sought clarity on the future of the TCFD rules in light of the global shift towards ISSB standards, urging the FCA to ensure international alignment and a practical, industry-informed approach.

In line with its five-year strategy to support growth and be a smarter regulator, and in light of the findings, the FCA is considering how to streamline and enhance its sustainability reporting framework to: (i) simplify disclosure requirements and reduce regulatory burden on firms; (ii) maintain good outcomes for clients and consumers and enhance the decision-usefulness of reporting, building on the sustainability disclosure requirements (SDR) to improve trust and reduce greenwashing; and (iii) align with international standards to maintain the UK's global leadership position in sustainable finance. Going forward, the FCA seeks to take a holistic approach to sustainability reporting, considering the SDR, the ongoing endorsement of ISSB standards and transition plan developments, while continuing to work with government and regulators to ensure consistency along the investment chain. Further industry engagement is planned to inform next steps, and stakeholders are encouraged to share their views. In the meantime, firms must continue to comply with ESG Sourcebook requirements, including publishing accessible reports and conducting scenario analysis. The FCA has also updated its webpage on sustainability reporting requirements to clarify how in-scope firms can report efficiently under both the TCFD and SDR regimes.

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