UKSIF response: FCA CP26/17- Simplifying climate disclosure requirements for investment products
UKSIF welcomes the opportunity to respond to the FCA’s consultation, Simplifying climate disclosure requirements for investment products. This consultation is an important step in our view in the ongoing evolution of the UK’s climate and sustainability reporting landscape.
In our response to CP26/17, we express our support for the direction of travel of the FCA’s proposals while suggesting ways to help enable institutional and retail clients to make informed investment decisions based on disclosures from in-scope firms, and to access an appropriate level of information based on their needs.
Executive summmary
- UKSIF supports the FCA’s overall objective of making product-level climate-related disclosures by asset managers, life insurers, and FCA-regulated pension providers more decision-useful, proportionate, and outcomes focused. We agree that overly prescriptive product-level TCFD reports for regulated firms have to date, generally, not been effective in informing retail investors and supporting their investment decision-making.
- We largely welcome the proposed flexibility for future product-level reporting on climate change by in-scope investment firms, in particular the consultation’s measures aimed at retail investors. We believe the benefits of greater flexibility and simplification to reporting will depend on the final requirements maintaining appropriate access for end investors to decision-useful, good-quality, and timely climate-related information, particularly for institutional clients. Envisaged benefits will also be maximised through enhanced coherence across climate disclosure expectations by policymakers and regulators across the whole investment chain.
- Our response primarily recommends a number of clarifications to support the implementation of the new rules and to promote ongoing, good-quality disclosure of relevant climate-related information at the product-level for end investors, while seeking to work within the broad parameters of the regulator’s proposals. While our response outlines several recommendations to support clarity in climate information received by retail investors, our views mainly focus on the disclosures provided to institutional clients. This is to ensure that this group specifically can continue to receive relevant information in fund disclosures to support a wide range of use-cases, including regulatory reporting obligations.
- The FCA’s final rules should seek to provide additional clarity for in-scope regulated firms on the regulator’s materiality expectations under the rules, which would provide more certainty for investment firms reporting under the requirements and also for clients receiving fund-level disclosures. Our response highlights several recommended options for how this could be achieved in practice.
- We outline various proposals aimed at promoting access for institutional clients to timely and consistent climate-related information. This includes assessing further the impacts of the ‘once per calendar year, per product’ data request requirement, as well as potentially reviewing the case for a slightly broader baseline of climate change metrics within the rules. At a minimum, we support clearer language in the rules to more actively encourage the disclosure of supplementary climate metrics to clients where relevant.
- We recommend the regulator monitors the impact of the requirements in the coming years and how they are supporting progress against the consultation’s envisaged outcomes, including: more informed investment decision-making by end investors, deeper consideration of climate risks and opportunities by in-scope firms, and the coordinated flow of climate information along the investment chain. It would be beneficial for the rules to be periodically assessed in terms of comparability and transparency of new product-level disclosures by investment firms, so that simplification of reporting requirements does not have unintended consequences. This includes considering any impacts on clients and wider stakeholder groups, such as financial advisers and distributors.