City watchdog may demand UK’s top firms reveal climate impact

The City watchdog may soon demand Britain’s top-tier companies come clean on their effect on the environment and disclose the financial risks they face due to the climate crisis.

The Financial Conduct Authority (FCA) set out proposals which would call on all companies listed on the UK’s premium stock markets – including most companies listed on the FTSE – to fall in line with tough new climate standards.

The plans are expected to draw heavily on the climate recommendations set out by the by the Task Force on Climate-related Financial Disclosures (TCFD), a voluntary framework for companies that is considered a global gold standard for climate disclosure.

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The watchdog opened the plans to consultation on Friday, and hopes to draw up final rules before the end of the year.

Andrew Bailey, the chief executive of the FCA, who is due to take over from Mark Carney as Bank of England governor later this month, said the global climate crisis presents “a serious and wide-ranging threat to global economic prospects, society more broadly and our natural environment”.

“The changes we propose will help to provide the transparency the market needs to be able to assess how well companies are adjusting to the risks of climate change. 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,” he said.

The TCFD framework was spearheaded by Carney during his time as Bank of England governor, and chaired by US businessman Michael Bloomberg, to create a standard set of climate disclosure rules to help create a sustainable financial system.

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Carney warned late last year that major corporations have two years to agree rules for reporting climate risks before global regulators devise their own and make them compulsory.

The FCA’s proposals still leave wriggle room for companies to continue to withhold climate-risk information by calling for them to comply with the rules or to “explain why not”.

But most publicly listed companies are expected to comply due to rising pressure to prove their sustainability credentials.

Earlier this week the Investment Association, which represents 250 members with £7.7tn under management, set a three-year deadline for companies to explain in their annual reports how they plan to measure and manage the threat of a climate catastrophe.

The UK’s accounting watchdog, the Financial Reporting Council, has also launched a major review into whether companies and their auditors are adequately reflecting the financial risks of the climate crisis in their accounts.

Ben Stansfield, an environmental lawyer at Gowling WLG, said it was a “very significant step” from the FCA and underlined the green agenda established by Carney.

“It’s important that the sense of ‘zero tolerance’ around climate non-disclosure continues – there is a climate emergency and business who don’t respond to it will very likely struggle,” he said.

“We know that there are activists and investors alike who read and take note of climate change disclosures and we know they will take action if climate risks and environmental impacts are not properly described. I do hope that best practice will infiltrate the culture of the UK’s top companies and drive long-lasting change and direction where climate change is concerned,” Stansfield added.

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