FCA feedback statement on climate change and green finance

A cura di:

In brief…

On 16 October 2019, the Financial Conduct Authority (FCA) published its Feedback Statement on Climate Change and Green Finance (FS19/6), setting out a summary of responses to its discussion paper and next steps.

The Feedback Statement follows the FCA’s Discussion Paper (DP18/8) on Climate Change and Green Finance, published in October 2018, which sought views on potential FCA action in the area.

In its October DP18/8, the FCA had set out:

  • How the different impacts of climate change could impact its long and short-term objectives;
  • Some of the opportunities and risks the transition to a low carbon economy presents to the UK’s financial services markets; and
  • Specific actions it would take in the near-term to ensure that markets function well and deliver good consumer outcomes.

Despite these challenges it is important to stress that green finance is a rapidly growing area. Indeed, the Feedback Statement notes that global labelled green bond issuance reached USD117.8 billion, surpassing H1 2018 volume by 48%.

Why does the FCA consider climate change to be important from a financial services perspective?

The FCA’s work in this area has been motivated by concerns about climate change’s potentially significant, wide-ranging impact on the UK economy and on financial services markets more generally. The FCA believes that it has an important role in helping firms manage the risks from moving to a low carbon economy, supporting the development of the green finance market and ensuring that consumers are appropriately protected.

Broadly, the FCA assigns the financial risks of climate change into two categories:

  • Physical risks – this includes financial losses arising from extreme weather events creating business disruption and increasing the cost of insurance; and
  • Transition risks – this includes the impact on operating costs from making changes to greener business models. The FCA has highlighted that this could be particularly acute for longer-term investors, such as pension funds.

FCA focusing on three outcomes

In order to meet its strategic and operational objectives in respect of climate change and green finance, the FCA is focusing on ensuring the following three outcomes:

  • That issuers provide markets with readily available, reliable and consistent information on their exposure to material climate change risks and opportunities;
  • That regulated financial services firms integrate the consideration of material climate change risks and opportunities into their business, risk and investment decisions; and
  • That consumers have access to green finance products and services which meet their needs and preferences, and receive appropriate information and advice to support their investment decisions.

Recommendations for FCA regulated firms

In its Feedback Statement, the FCA noted that it expects to be more active in scrutinizing the degree to which regulated firms consider the impacts of climate change, particularly in terms of managing the resulting financial risks and ensuring that green financial products meet the needs and preferences of consumers.

While the FCA has not yet published final rules and guidance in this area, the Feedback Statement provides strong indications of its supervisory expectations moving forward. In particular, the FCA expects regulated firms to:

  • Integrate the consideration of long-term climate change risks and opportunities into the business, risk and investment decisions they make, across all sectors and asset classes;
  • Assess how climate change might pose risks to their businesses, both in terms of physical risks and transition risks;
  • Review the effectiveness of their stewardship policies and investment strategies in promoting the consideration of climate change risks and opportunities, as well as other environmental, social and governance (ESG) factors;
  • Ensure that senior managers pay due regard to climate change and other environmental factors when managing financial and operational risks, and integrate these risks within their existing risk management strategy;
  • Review financial products marketed as green to ensure that the focus of such products is demonstrably placed on sustainable economic activities; and
  • Consider the appropriateness of making disclosures on climate risk in line with the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations.

Issuers’ climate change disclosures

In early 2020, the Feedback Statement notes that the FCA will publish a consultation paper proposing new disclosure rules for certain issuers aligned with the TCFD recommendations, at least initially, on a comply or explain basis, and clarify existing disclosure obligations relating to climate change risk. Implementation on this basis aligns with the feedback the FCA has received from industry that any rule changes should be proportionate, consistent with the existing TCFD recommendations and without an automatic sanction for non-compliance.

The FCA will also consider how best to enhance climate-related disclosures by regulated financial services firms that fall outside the scope of the new rules for certain listed issuers. The FCA noted that this consultation will be considered as a foundation for considering further rules in respect of issuer disclosures on other sustainability factors and future climate-related disclosures from regulated firms more generally.


The FCA has stated that it will challenge firms where it identifies potential greenwashing and take appropriate action to prevent consumers being misled. Greenwashing in this context refers to the inaccurate description or miss-selling of certain financial products as green or sustainable investments.

In this respect, the FCA will also engage and consider the proposals of the EU Sustainable Finance Action Plan (SFAP) relevant to products and services, particularly around common standards and product disclosures. The FCA has noted that sustainable product offerings remain an “active area of focus,” that it intends to gauge whether there is evidence of such greenwashing and that it is considering whether further guidance in relation to governance, design and delivery of such products is necessary.

Challenges with regulatory action in the green finance sector

The FCA has acknowledged the various challenges associated with implementing regulatory change in this space. In particular, the Feedback Statement comments on:

  • The difficulty issuers and regulators will have agreeing a uniform approach for disclosure (e.g. how to disclose remote, tail-end climate risks and accurately assess materiality given the complexity of climate risks and avoid the need for disclosure becoming a box ticking exercise);
  • The risk that issuers’ assets may be mispriced if disclosure is not done correctly;
  • The fact that the short-term results culture of finance may make it challenging for firms to embed a culture which prioritizes climate change risks; and
  • The challenge firms and regulators will have policing greenwashing given the increasing volume and attractiveness of such products.

Despite these challenges it is important to stress that green finance is a rapidly growing area. Indeed, the Feedback Statement notes that global labelled green bond issuance reached USD117.8 billion, surpassing H1 2018 volume by 48%.

Joint work with government, other regulators and industry

The FCA also draws attention in the Feedback Statement to its ongoing collaboration with government, other regulatory bodies and industry. The FCA continues to monitor and contribute to initiatives at a European.

The FCA has stated its intention to continue to contribute to collaborative initiatives such as the Climate Financial Risk Forum, the Fair and Effective Markets Review working group, support the UK government’s Green Finance Strategy through membership of the government-led cross-regulator taskforce on disclosures, as well as the SFAP. The UK regulator’s contribution through the Feedback Statement is, in this respect, presented as part of a wider picture, and the next steps proposed are presented as the foundation for further change and development in this space.


Both climate change and green finance remain an increasing area of focus for policymakers at both UK and EU level. Currently, regulatory efforts are focused on embedding climate risk considerations into firm’s governance frameworks, developing a uniform approach to climate risk disclosure (initially on a comply or explain basis for listed issuers) and reviewing the marketing of and tightening rules around green products to ensure that greenwashing is not taking place.

We expect to see further regulatory developments in this field during 2020, including proposed rule changes to facilitate patient capital opportunities, enhanced guidance on the role of firms’ culture, governance and leadership in managing climate change risks, as well as initiatives to encourage the growth of the green fintech sector.