The Financial Conduct Authority (FCA) has proposed simplifying climate reporting rules for investment products in a move it says could save investment firms around £20m a year.
The regulator is consulting on replacing detailed product-level reports based on the Task Force on Climate-related Financial Disclosures (TCFD) with simpler and more targeted information for retail investors that aligns with Consumer Duty.
The changes aim to give investors clearer insight into how climate risks – such as floods, storms and other extreme weather events – could affect investment performance, while reducing unnecessary costs to investment firms.
Michelle Beck, director of wholesale buy-side at the FCA, said: “As part of being a smarter, more proportionate regulator, we’re cutting complexity in our rules for asset managers, while keeping the focus on clear, useful information for investors. These proposals will make it easier for firms to communicate with their customers in ways that genuinely inform and engage them.”
The proposals follow a review of how the current rules are working, which found that while the rules have improved firms’ awareness of climate risks, product-level reports are often seen as too complex by investors and are not widely used.
Read more: FCA urged to ‘swiftly’ update sustainability disclosure rules
Deon Dreyer, investment director and head of ESG advisory at consultancy Broadstone, said that current product-level reports can be “highly technical documents that are difficult for retail investors to navigate”, so moving towards “clearer and more targeted disclosures” should help “improve engagement and understanding”.
“Climate risk remains a financially material consideration for long-term investors and the challenge will be ensuring that simplification does not come at the expense of transparency,” he said.
“The proposals reflect a broader shift towards more pragmatic, outcomes-focused regulation, with firms expected to communicate risks in a way that consumers can genuinely understand. If implemented carefully, this could reduce unnecessary compliance costs while improving the quality of information investors use to make decisions.”
The consultation is open until 13 July and seeks views from asset managers, asset owners, trade bodies, and consumer groups to make sure the proposed rules work in practice and support growth.
