ClientEarth response to FCA consultation on climate-related disclosures for standard listed issuers (CP21/18)

The UK’s Financial Conduct Authority (FCA) has consulted on proposals to enhance its climate-related disclosure requirements for standard listed issuers and invited views on certain ESG topics in capital markets (CP21/18). The FCA has consulted separately on enhancing climate-related disclosures for asset managers, life insurers and pension providers (see our response here).

The FCA is proposing to amend its Listing Rules to require all standard listed issuers disclose information in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) on a ‘comply or explain’ basis (currently only premium listed issuers are required to do so). Notably, this would include a requirement for companies to publish transition plans, in line with the TCFD’s recent consultation (see also our response).

ClientEarth welcomes the proposed extension of climate-related disclosures to standard listed issuers. However, the proposals do not go far enough. In this document, we propose a number of enhancements to the FCA’s proposals in order to ensure that consumers, investors and other stakeholders receive the granular detail they need and are entitled to expect to make informed decisions, including:

1. Transition plans: While we support the FCA’s proposals to require in-scope companies to disclose transition plans, we call on the FCA to specify that transition plans must be aligned at a minimum with the temperature goals of the Paris Agreement and the UK Government’s emissions reduction commitments, in line with the best available science.  Our analysis of 2019-2020 annual reporting and of certain listed companies’ 2021 annual reports found that there is a pervasive lack of clarity on what action on climate change companies are actually taking.
2. Enforcement: We call for FCA to procure that it is adequately empowered and resourced to hold laggards accountable for failures to satisfy climate change-related reporting obligations, and must commit to taking such action.
3. Mandatory basis: The rules should be introduced on a clear mandatory basis, not a weak and confusing ‘comply or explain’ approach.
4. Accounts: The FCA should require all in-scope companies to align their financial accounts with the goals of the Paris Agreement and the UK’s emissions reduction targets, including the underlying assumptions and estimates.
5. Scope 3 emissions: We call for the FCA to expressly require that all in-scope companies, across all sectors, disclose all categories of scope 3 (i.e. supply chain) emissions for which they are responsible.
6. Audit of annual report: Auditors must at least be required to provide a ‘limited assurance’ opinion in relation to climate-related disclosures included in the annual report.
7. Scope: The new rules should include issuers of: (a) standard listed debt (and debt-like) securities; (b) global depositary receipts (bank-issued certificates which represent shares in the issuer); (c) and standard listed shares other than equity shares (e.g. preference shares).
8. Overlap with BEIS disclosures: Companies that fall within scope of both the FCAs proposals under CP21/18 and the BEIS climate-related disclosure regime for quoted and large companies should be required to make a single disclosure in the strategic report fulfilling both sets of rules.
9. ESG topics in capital markets: As investors increasingly turn to ESG data and ratings to inform, and justify, their decision-making in line with sustainability and/or net zero portfolio alignment  criteria, we call on the FCA to work with the Treasury to bring these entities within its regulatory perimeter without delay to ensure the transparency, comparability and credibility of ESG data and ratings issuers.