FCA consults on TCFD rules for contract-based schemes

The Financial Conduct Authority (FCA) has today launched a consultation on extending the climate reporting rules to insurance-based defined contribution (DC) schemes, including both workplace and non-workplace propositions.

The Task Force on Climate-related Financial Disclosures (TCFD) rules will also begin to apply to non-insurance DC schemes as well as self-invested personal pension schemes (SIPPs) where the operator offers investments to be held within the SIPP wrapper.

The FCA said it would ensure that consumers will "receive broadly consistent climate-related financial information about their pension products", regardless of whether they are in trust- or contract-based schemes.

From October this year, schemes with more than £5bn of assets - and all authorised master trusts - will be required to make TCFD-aligned disclosures.

The rules will also apply on a product-level basis to default workplace pension investment strategies (but excluding smallest and least popular defaults) and investment pathways in drawdown products.

The rules will initially extend to FCA-regulated £50bn-plus asset owners and £25bn-plus asset owners, calculated on an annually-monitored three-year rolling basis, effective from 1 January 2022 with a publication deadline of 30 June 2023.

In the second phase, it would extend to the remaining asset managers or asset owners above a £5bn threshold from 1 January 2023, with a publication deadline of 30 June 2024.

Given the requirements on trust-based schemes, the FCA recognised that "only a mandatory regime for asset managers will support the required flow of information". It also aims to meet the government's expectation of mandatory TCFD disclosures across the economy by 2025.

Nevertheless, the FCA is providing flexibility to allow disclosures to be made on a "best efforts" basis, particularly where metrics are not yet fully established.

FCA executive director of consumer and competition Sheldon Mills commented: "The climate change challenge affects the whole of society. It is vital that the financial services sector plays a leading role in addressing this challenge."

He said high-quality information was essential in this process, enabling a greater understanding of how risks and opportunities are managed in the investment chain.

"However, climate-related disclosures do not yet meet investors' and market participants' needs," he continued. "The new rules will help markets, investors and ultimately consumers better understand the impact of climate change and make more informed decisions."

The consultation was launched alongside a separate consultation on extending the TCFD-aligned listing rule to issuers of standard listed equity shares, while the FCA is also seeking views on ESG issues in capital markets, including green and sustainable debt markets and ESG data and rating providers.

The consultations will close on 10 September, with the final policy on climate-related disclosures expected to be confirmed by the end of the year.