Financial Regulatory Body Proposes Easing Sustainability Reporting Obligations for Investment Managers and Insurance Companies
The Financial Conduct Authority (FCA) has announced plans to streamline and simplify its sustainability reporting framework for asset managers, life insurers, and pension providers in the UK. This move comes in light of the FCA's 2021 climate reporting rules and the evolving global standards led by the International Sustainability Standards Board (ISSB).
The FCA aims to reduce regulatory complexity and ease reporting burdens while maintaining transparency and effective management of climate risks. Key planned adjustments include:
- Simplification of disclosure requirements: The FCA recognises that the granular detail required under the previous Taskforce on Climate-related Financial Disclosures (TCFD) rules was too complex, especially for retail investors. The FCA intends to consolidate and clarify these obligations to enhance usability without sacrificing effectiveness.
- Incorporation of ISSB standards: With the ISSB now overseeing global sustainability standards, the FCA will endorse and integrate the ISSB standards (referred to as UK Sustainability Reporting Standards) into its framework. This alignment aims to foster consistency along the investment chain and support comparability and interoperability of sustainability disclosures.
- Phased reporting transition: Reflecting the ISSB’s approach, the FCA may adopt or support phased transition reliefs allowing firms initially to report primarily on climate-related matters before expanding to broader sustainability disclosures. This phased approach provides firms with extra time to develop capabilities and data systems.
- Flexibility on classification standards: The FCA and related UK consultations have considered allowing firms to use alternative industry classification standards instead of the commercially licensed Global Industry Classification Standard (GICS) currently required under IFRS S2’s financed emissions disclosures, to reduce costs and leverage existing internal classification systems.
- Ongoing collaboration and review: The FCA will continue to work closely with the UK government, other regulatory bodies, and trade associations to refine the sustainability reporting framework, ensuring it remains practical, relevant, and consistent with international developments.
The FCA's plans follow a review of climate reporting rules implemented in 2021. The review found that while detailed climate disclosure information is helpful for institutional investors, some firms indicated that the level of detail required under the TCFD recommendations was too complex for retail investors. Around half of the reports reviewed by the FCA did not disclose the impact of all 3 climate scenarios on the fund, limiting comparability between firms' reports.
The FCA is promoting international alignment in sustainability reporting and is working towards building trust and reducing greenwashing by building on its Sustainability Disclosure Requirements (SDR) regulation. The organisation is also looking at simplifying disclosure requirements and easing unnecessary burdens on firms to improve the decision-usefulness of reporting for clients and consumers.
In summary, the FCA is moving to simplify and harmonize sustainability reporting expectations by aligning with ISSB standards, reducing complexity from overlapping regimes, allowing more flexible reporting classifications, and supporting a manageable transition for firms—thereby improving transparency and enabling better management of climate-related risks across asset management, insurance, and pension sectors in the UK.
- The FCA will integrate the International Sustainability Standards Board (ISSB) standards into its framework, aiming to foster consistency in sustainability disclosures across the investment chain.
- To enhance usability without sacrificing effectiveness, the FCA plans to simplify disclosure requirements and consolidate the obligations required under the previous Taskforce on Climate-related Financial Disclosures (TCFD) rules.
- Recognizing the importance of scientific developments, the FCA will collaborate with trade associations, the UK government, and other regulatory bodies to refine the sustainability reporting framework, focusing on environmental-science and climate-change issues within finance and business.
