Global menu

Our global pages


FCA Feedback Statement FS19/6 – Climate Change and Green Finance: summary of responses and next steps

FCA Feedback Statement FS19/6 – Climate Change and Green Finance: summary of responses and next steps
  • United Kingdom
  • Financial services and markets regulation
  • Investment funds and asset management


On 16 October 2019, the FCA published their feedback statement FS19/6 on Climate Change and Green Finance[1]. This feedback statement summarises the responses from stakeholders to the Discussion Paper (DP18/8) on Climate Change and Green Finance[2] which the FCA published in October 2018, and sets out the FCA’s actions and next steps.


In respect of climate change and green finance the FCA is focused on delivering the following three outcomes:

  • issuers providing markets with readily available, reliable and consistent information on their exposure to material climate change risks and opportunities
  • regulated financial services firms integrating consideration of material climate change risks and opportunities into their business, risk and investment decisions
  • consumers having access to green finance products and services which meet their needs and preferences, and receiving appropriate information and advice to support their investment decisions

There were 73 responses from a range of stakeholders including regulated firms, trade bodies and think tanks; this feedback has been grouped under five key themes:

  • climate-related disclosures by securities issuers
  • climate-related disclosures by regulated firms
  • common metrics and standards on sustainability
  • stakeholder’s concerns, commercial priorities and barriers to growth
  • industry engagement

Climate-related disclosures by securities issuers

Stakeholders are concerned by the challenges in determining what is a financially material climate-related risk.  The complexity of climate change risks, the fact that many climate-related risks may crystallise beyond a company’s typical planning horizon, modelling and methodological difficulties, and issues in the sourcing of appropriate data inputs pose particular difficulties.

Respondents want the FCA to clarify existing issuer disclosure requirements and to use rules to potentially and proportionately strengthen them. The Financial Stability Board’s Taskforce on Climate-related Disclosures (“TCFD”)[3] recommendations are widely regarded as providing a useful climate-related financial disclosure framework.

Around two thirds of the 60 respondents who answered the question supported a ‘comply or explain’ approach to disclosures, however, a significant proportion saw this as a first step towards mandatory disclosures in the future.

The Discussion Paper preceded publication of the UK Government’s Green Finance Strategy.  This set an expectation that all listed companies and large asset owners will disclose in line with the TCFD recommendations by 2022 and the FCA seem to suggest that they may make TCFD disclosures mandatory following consultation.[4]

Climate-related disclosures by regulated firms

The FCA see improved issuer disclosure as a foundation for improving climate-related disclosures by regulated firms.  Effective issuer disclosure supports regulated firms when considering climate-related risks, aids informed decision making and help to ensure regulated firms have the information required to support their own disclosures.

The FCA understands that its future steps in relation to disclosures should take into account wider initiatives to avoid duplication or divergence.

Common metrics and standards on sustainability

The consultation closed before the EU’s Technical Expert Group published the draft taxonomy in June 2019.

The majority of the respondents support the need for internationally agreed standards and metrics on sustainability. The FCA recognises the importance of allowing sufficient flexibility and that there may be legitimate reasons for differences in approaches and assessments of the sustainability of products. Developing EU standards and requirements will underpin approaches taken by the UK financial sector.

The FCA noted that the Government has committed to at least matching the ambition of the objectives of the EU’s Sustainable Finance Action Plan in relation to green finance. The FCA will continue to consider, in light of the UK’s withdrawal from the EU, with the Government and other regulators, what actions may be necessary to support the development of sustainable finance standards and definitions.

In a similar vein, last week the Investment Association published its Responsible Investing Framework which sets out a framework for its members when looking at sustainability and responsible investment, including some suggestions for common language, disclosures and a proposal for a label for retail funds which adopt a responsible investment approach.[5]

Stakeholder’s concerns, commercial priorities and barriers to growth

Stakeholder concerns include:

  • perceived lack of urgency at Government level, manifesting in few incentives to accelerate the development of green products
  • vested interests across the economy that serve to preserve the status quo
  • potential negative impacts for firms and consumers arising from:
    • litigation risk
    • ‘stranded assets’[6]
    • market-led obsolescence of certain products and services during the transition

Roughly half of the 45 respondents note the persistent short-term results culture in financial services as a barrier to growth, even when assets are invested for the long term.  Some respondents also note a general lack of engagement, understanding and awareness of climate change risks on both the demand and supply sides.  There remains a general perception that investing in sustainable products will sacrifice returns.

Respondents identify the absence of common standards, and insufficient and poor-quality data as barriers to effective product design and delivery.

The FCA acknowledges the concerns in relation to short-termism and considers that more can be done to set expectations of financial services firms and remove barriers to integrating sustainability factors more broadly into business, risk and investment decisions.  The FCA notes there are several existing initiatives which aim to promote long-term perspective, including investor stewardship and the implementation of the Shareholders Rights Directive II.[7]

Industry engagement

A number of respondents see industry engagement by the FCA as an important way to communicate expectations on climate-related matters and maintain awareness of concerns and challenges. 

Respondents supported the establishment of the Climate Financial Risk Forum (“CFRF”) set up jointly by the FCA, PRA and bank of England, although there were some concerns regarding the potential duplication of existing work in other groups. 

FCA actions and next steps

On reviewing the feedback and wider policy developments to assess where they can have the greatest impact in addressing harms the FCA identifies the following priority near-term actions and areas for further consideration:

  • clarifying that existing rules require disclosure of all financially material climate related risks
  • the Green FinTech Challenge
  • challenging firms where FCA sees potential ‘greenwashing’[8] and carrying out further policy analysis
  • publishing a feedback statement on stewardship[9]
  • publishing a policy statement on Independent Governance Committees’ (“IGCs”) consideration of ESG factors
  • publishing a consultation paper on new rules on TCFD aligned climate change disclosures
  • considering the proposals of the EU’s Sustainable Finance Action Plan relevant to product disclosures
  • finalising measures to facilitate investment in patient capital.


FCA Action

Commentary and expected dates


Clarifying that existing rules require disclosure of all financially material climate related risks

As of 15 November 2019, the FCA has not yet published clarification.

No current direct impact.

Additional disclosures may be required depending on the scope and materiality of the clarification once made.


The Green FinTech Challenge


Nine firms have been accepted as part of the Green FinTech Challenge which was launched in October 2018 to support innovation and growth in the Green Finance sector as party of the government’s Green Great Britain Week.

No direct current impact.

Once the Green FinTech challenge is completed, the FCA will reflect on whether they wish to roll out further FinTech Challenges.


Challenging firms where FCA sees potential ‘greenwashing’ and carrying out further policy analysis

The FCA has not yet publicly challenged any potential greenwashing.

Further policy analysis expected to take place in Q1 2020.

Whilst we have not yet seen action taken by the FCA to challenge potential greenwashing, funds which purport to have ESG or sustainability credentials are interrogated by the FCA as part of the authorisation process and they expect firms to be very clear on the particular approach being taken.


Publishing a feedback statement on stewardship

The feedback statement was published on 24 October 2019 and the FCA acknowledged that, given the rules on shareholder engagement have only recently come into effect, the industry should be given time to embed those rules as well as the Code and other sustainable finance before further regulation is considered.

The FCA also noted that if remaining barriers to effective stewardship can be removed, market-led incentives are likely to be a more effective mechanism than further regulation to encourage investors to engage more actively in stewardship. This could complement existing measures and the UK Stewardship Code 2020[10] which was also published on the 24 October 2019.

In Q1 2020, the FCA and other regulators will engage institutional investment community representatives in a workshop to consider how asset managers set and communicate their stewardship objectives and how these are communicated.

This could prompt an extension on the scope of the FCA’s current rules on stewardship.

The FCA also intends to engage with the Investment Association’s ongoing work in considering how to promote long-term perspective in investment mandates and asset owners’ other arrangements with asset managers.

The aim is to ultimately provide guidance and a cross-industry steering group is to be established to oversee this work.

The FCA reiterates the intention to introduce TCFD aligned disclosures on a ‘comply or explain’ basis.

The FCA also highlights specialist data service providers as a future area of focus in relation to their role collating, assessing and providing ESG metrics.


Publishing a policy statement on IGCs consideration of ESG factors


Policy statement expected in Q4 2019.

No current direct impact, await release of policy statement.

Publishing a consultation paper on new rules on TCFD aligned climate change disclosures


Consultation paper expected early 2020.

No current direct impact, await release of consultation paper.

Considering the proposals of the EU’s SFAP relevant to product disclosures


Expected to take place in Q1 2020.

No current direct impact.

Finalising measures to facilitate investment in patient capital


This may extend beyond Q1 2020.

No current direct impact.

How Eversheds Sutherland can help

Our team has been at the forefront of regulatory interpretation and product development for the fund management industry since the 1980s. Please get in touch if you would like further information on how the new regulation may affect you.

[1] Read the FCA Feedback Statement FS19/6 here.

[2] Read the discussion paper here.

[3] Read the TCFD recommendations here.

[4] Read the Green Finance Strategy here.

[5] Read the IA’s Responsible Investing Framework report here.

[6] Eg assets that become worthless or undesirable due to their exposure to physical climate change risks.

[7] Read FCA Policy Statement PS19/13 – Proposals to promote shareholder engagement here.

[8] ‘Greenwashing’ is marketing that portrays an organisation’s products, activities or policies as producing positive environmental outcomes where this is not the case

[9]  Read the Feedback Statement – Building a regulatory framework for effective stewardship here.

[10] Read the UK Stewardship Code 2020 here.