On 16 October 2019, the Financial Conduct Authority (FCA) published its Feedback Statement on Climate Change and Green Finance (FS19/6), setting out a summary of responses to its discussion paper and next steps.


The Feedback Statement follows the FCA’s Discussion Paper (DP18/8) on Climate Change and Green Finance, published in October 2018, which sought views on potential FCA action on climate change and green finance, in line with its strategic objective of ensuring relevant financial markets function well.

Separately, the Prudential Regulation Authority (PRA) had published Supervisory Statement 3/19 in April 2019, setting out its expectations on managing the financial risks from climate change for insurers, banks, building societies and PRA-designated investment firms. The PRA expects relevant firms to have in place an initial climate change action plan to incorporate the financial risks of climate change into four principal areas: (1) governance frameworks; (2) risk management frameworks; (3) using scenario analysis to assess impacts; and (4) disclosure.

As part of the Green Finance Strategy (GFS), the Government set out its plans to clarify the responsibilities for the FCA, PRA and Financial Policy Committee to have regard to the Paris Agreement when carrying out their duties. The FCA’s work on Climate Change and Green Finance is therefore in line with the Government’s expectations on the FCA’s supervisory approach.


The FCA’s work on Climate Change and Green Finance was motivated by concerns that climate change is having a significant, wide-ranging impact on the UK economy and on financial services markets. The FCA believes that it has an important role in enabling firms to manage the risks from moving to a low carbon economy, supporting the development of the green finance market and ensuring that consumers are appropriately protected.

The FCA sets out the reasons why climate change is an important issue for itself, the financial services sector, and the users of financial services. The FCA discusses the need to address the financial risks of climate change, categorised as physical risks (e.g. due to extreme weather events creating business disruption) and transition risks (e.g. the impact on operating costs from making changes to greener business models).

In order to meet its strategic and operational objectives in respect of climate change and green finance, the FCA is focusing on three outcomes to ensure that:

  • issuers provide markets with readily available, reliable and consistent information on their exposure to material climate change risks and opportunities;
  • regulated financial services firms integrate the consideration of material climate change risks and opportunities into their business, risk and investment decisions;
  • consumers have access to green finance products and services which meet their needs and preferences, and receive appropriate information and advice to support their investment decisions.

Challenges for FCA-regulated firms

The FCA is expected to be more active in scrutinising the degree to which regulated firms consider the impacts of climate change, particularly in terms of managing the resulting financial risks and ensuring that green financial products meet the needs and preferences of consumers.

While the FCA has not yet published final rules and guidance, there are strong indications of its supervisory expectations moving forward. Regulated firms should consider taking the following steps to address the impacts of climate change:

  • Integrate the consideration of long-term climate change risks and opportunities into the business, risk and investment decisions they make, across all sectors and asset classes;
  • Assess how climate change might pose risks to their businesses, both in terms of physical risks and transition risks;
  • Review the effectiveness of their stewardship policies and investment strategies in promoting the consideration of climate change risks and opportunities, as well as other environmental, social and governance (ESG) factors;
  • Ensure that senior managers pay due regard to climate change and other environmental factors when managing financial and operational risks, and integrate these risks within their existing risk management strategy;
  • Review financial products marketed as ‘green’ to ensure that the focus of such products is demonstrably placed on sustainable economic activities;
  • Consider the appropriateness of making disclosures on climate risk in line with the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations.

Next steps

The FCA plans to take various actions which will provide the foundation for its future work on climate change and green finance. The FCA’s actions target each of the three outcomes described above.

Issuer’ climate change disclosures

In early 2020, the FCA will publish a consultation paper proposing new disclosure rules for certain issuers aligned with the TCFD recommendations, at least initially, on a ‘comply or explain’ basis, and clarify existing disclosure obligations relating to climate change risk.

In addition, the FCA will consider how best to enhance climate-related disclosures by regulated financial services firms that fall outside the scope of the new rules for certain listed issuers.

Firms’ integration of climate change risk

The FCA will publish a feedback statement in the coming weeks in response to its joint Discussion Paper with the Financial Reporting Council (FRC) on stewardship, which set out actions to help address some of the most significant barriers to effective stewardship. By the end of 2019, the FCA will finalise proposed rule changes requiring Independent Governance Committees to oversee and report on firms’ ESG and stewardship policies. The proposed rule changes to facilitate investment in patient capital opportunities will also be finalised in due course.

Expectations around green financial products and services

The FCA will challenge firms where it identifies potential greenwashing, clarify its expectations and take appropriate action to prevent consumers being misled, while carrying out further policy analysis on greenwashing and take action (e.g. guidance) to address concerns as appropriate. The FCA will also engage and consider the proposals of the EU Sustainable Finance Action Plan (SFAP) relevant to products and services, particularly around common standards and product disclosures.

Joint work with Government, other regulators and industry

The FCA will continue to contribute to collaborative initiatives such as the Climate Financial Risk Forum, the Fair and Effective Markets Review working group, support the GFS through membership of the Government-led cross-regulator taskforce on disclosures, and the SFAP.

To assist clients in this space, Norton Rose Fulbright’s ESG Insight Hub is designed to help financial institutions and investors with the growing requirement to assess, monitor and disclose the sustainability of their investments. More information on ESG Insight can be found here.