The Financial Conduct Authority is seeking comment on areas of climate change and green finance that may require greater regulatory focus.
The U.K. financial watchdog published a discussion paper Monday outlining four areas of consideration of further scrutiny in the context of financial services:
- Climate change and pensions – ensuring that those making investment decisions take account of risks including climate change.
- Enabling competition and market growth for green finance.
- Ensuring that disclosures in capital markets appropriately give adequate information to investors of the financial impacts of climate change.
- The scope for the introduction of a new requirement for financial services firms to report publicly on how they manage climate risks.
Regarding the potential new disclosure requirement, the FCA specifically wants feedback on the value of a climate change measure, plus information that could be included in a climate risk report and views on which regulated firms should be required file climate risk reports.
In the paper, the FCA acknowledged that climate change is likely to "fundamentally transform our economies" over the next few decades, and the FCA said it must consider all major risks that have an impact on the markets and firms it regulates.
"The physical risks of climate change, international and domestic political commitments on climate change, and the subsequent response of corporations, capital markets, and investor demand, have started to cause changes in the financial services sector. These changes are likely to accelerate as the U.K. transitions further along the pathway set out in the Paris Agreement" — a global pact on climate change, said the paper.
The FCA said it has been working with domestic and international regulators, the government, industry and sustainable finance experts to understand specific areas in which it might add the most public value.
The paper sets out how the climate change would affect the FCA's long- and short-term objectives; opportunities and risks that a transition to a low-carbon economy presents to U.K. markets; and the specific action it will take in the near term to ensure that markets functions well and deliver favorable outcomes for consumers.
The FCA wants to hear from charities; industry groups and trade bodies; regulated firms; policymakers and regulatory bodies; industry experts and commentators; and academics and think tanks.
The FCA is also setting up a climate financial risk panel with the Prudential Regulation Authority, which supervises and regulates banks, insurers and other financial services firms in the U.K. The panel will enable the two agencies to coordinate action and share best practices on climate change with industry representatives, technical experts and other stakeholders. The first meeting could start early next year.