By Christopher Walker
As part of the UK’s Green Finance Strategy and alongside the Financial Services Statement issued by the Chancellor, the joint Government Regulatory group on the Taskforce on Climate-related Financial Disclosures (“TCFD”) has published its Interim Report and “Roadmap” for implementing mandatory climate-related disclosures.
The Interim Report supports an objective of allowing investors and businesses to “better understand the material financial impacts of their exposure to climate change, price climate-related risks more accurately, and support the greening of the UK economy”.
The Roadmap, which sets out a five year timeline, is presented as a coordinated strategy for seven categories of organisation – including asset managers. The Roadmap notes that there is “likely to be overlap in coverage between asset managers, life insurers and FCA-regulated pension schemes and firms that will be covered by disclosure expectations either as listed issuers or at the group level as insurance companies under the PRA’s supervisory expectations. However, the focus of potential dedicated disclosures for asset managers, life insurers and FCA-regulated pension schemes […] is on information that will be decision useful to clients and end investors”.
As such, the proposals detail further information on the FCA’s 2021 consultation regarding potential TCFD-aligned disclosure rules directed at clients and end-investors for UK authorised asset managers, life insurers and FCA-regulated pension providers, which are considered jointly by the Interim Report.
For the purpose of the Interim Report, asset managers are defined as:
- MiFID investment firms who provide portfolio management services;
- alternative investment fund managers (AIFMs), including small authorised AIFMs that have managing permissions;
- UCITS management companies; and
- UCITS funds without an external management company.
The outcome of the Roadmap would be new FCA rules for in-scope firms which would aim to prioritise the information needs of UK clients and end-investors “by firms responsible for setting investment strategy and making investment decisions on behalf of institutional and retail investors”, noting that implementation of “TCFD-aligned disclosure requirements for listed open- and closed-ended investment companies will be considered in parallel”.
The proposals will include disclosure of strategy, policies and processes at the firm level, covering relevant recommended disclosures, to be complemented by more targeted disclosures at the fund or portfolio level.
The Interim Report notes that, subject to an FCA consultation, cost-benefit analysis and other statutory requirements, the anticipated timeline for the proposals would be as follows:
- 2021: FCA consultation in first half of 2021 with an aim to finalise rules by the end of 2021
- 2022: Anticipated effective date of proposed disclosure rules for the largest or most interconnected firms, including UK-authorised asset managers with AUM greater than £50bn;
- 2023: Anticipated effective date of proposed disclosure rules for smaller in-scope firms, albeit potentially excluding “very small firms” from scope; and
- 2024-2025: Further refinement to measures may be considered (e.g. in response to evolving best practice).
The Interim Report notes that given the global nature of the industry, there will be interaction with international initiatives including the EU’s Sustainable Finance Action Plan – and areas such as the EU Sustainable Finance Disclosure Regulations and Taxonomy Regulations (“SFDR” and “SFTR” respectively). The Roadmap notes that proposed TCFD-aligned requirements “would as far as possible be consistent with and complementary to these initiatives”.
At this time, SFDR and SFTR will not be automatically onshored into UK law from the end of the Brexit Transition Period (i.e. currently 31 December 2020); however, UK firms marketing to EU investors or clients, or otherwise managing EU funds or products, will still need to consider the requirements set out in those regulations. The implementation of the draft SFDR regulatory technical standards has been delayed, although financial market participants and advisers will still need to comply with the high level and principle based requirements from March 2021.