Position paper on the UK listing regime and climate change

Climate change presents unique systemic risks which threaten: (a) the financial position of companies and investors; and (b) the integrity of the UK (and global) financial markets. The London Stock Exchange (LSE) is already significantly exposed to financial risks associated with fossil fuel assets held by listed companies. Moreover, the UK has committed to ‘ensure financial flows actually shift towards supporting net zero’.

Nevertheless, the current UK listing regime permits companies to list on the main market of the LSE even when their business models are incompatible with the climate goals of the Paris agreement and the transition to a low-carbon economy, exposing investors and markets to additional risk.

It is essential that the UK listing regime is brought into line with UK climate commitments, and the recognition that climate-related financial risk must be adequately disclosed and managed by companies on an ongoing basis once they are listed.

This position paper sets out a series of recommendations as to how the Financial Conduct Authority (FCA), as UK Listing Authority, must strengthen its approach to climate change-related risk at the point a climate-exposed company applies for listing, consistently with its regulatory objectives, UK climate commitments, and the protection of investors.

In summary, the FCA should use its existing powers to:

• Make Paris-alignment a condition of listing for climate-exposed companies;
• Treat climate-exposed listings as “high risk” transactions subject to heightened scrutiny during eligibility review; and
• Issue clear and authoritative guidance to the market explaining its approach to climate-exposed listings.