The FCA is proposing a disclosure regime for asset managers, life insurers, and pension providers.

By Paul Davies, Nicola Higgs, Victoria Sander, David Berman, Anne Mainwaring, and Charlotte Collins

On 22 June 2021, the FCA published a Consultation Paper (CP21/17) on introducing climate-related financial disclosure rules and guidance for asset managers, life insurers, and FCA-regulated pension providers. The disclosure requirements would be consistent with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

The FCA plans to introduce the disclosure requirements in a new ESG Sourcebook in the FCA Handbook. The regulator anticipates that this Sourcebook will expand over time to include new rules and guidance on other climate-related topics and wider ESG considerations.


The FCA proposes to apply the disclosure requirements to the following firms:

Asset managers

  • Investment portfolio managers
  • UK UCITS management companies
  • Full-scope UK AIFMs
  • Small authorised UK AIFMs

The FCA intends to capture different types of fund management activities, as well as wider portfolio management activities. The FCA explains that this would include investment advice provided by a UK entity to institutional clients within a group where substantive investment decisions are based on that advice. The proposed approach also aims to bring into scope asset management activities conducted by private equity firms.

Asset owners

  • Life insurers (including pure reinsurers) in relation to insurance-based investment products and defined contribution (DC) pension products
  • Non-insurer FCA-regulated pension providers, including platform firms and Self-invested Personal Pension (SIPP) operators, to the extent that SIPP operators provide a ready-made selection of investments

An exemption would apply to asset managers and asset owners with less than £5 billion in assets under management (AuM) or administration on a three-year rolling average. The exemption would need to be assessed annually, based on the firm’s business activities relating to in-scope products and portfolios.

The following products would be in scope:

Asset managers

  • Authorised funds (excluding feeder funds and sub-funds in the process of winding up or termination)
  • Unauthorised AIFs
  • Portfolio management services

Asset owners

  • Insurance-based DC pension schemes
  • Non-insurance DC pension schemes
  • SIPPs, either insurance or non-insurance-based, where the SIPP operator offers investments to be held within its SIPP wrapper

The FCA notes that the proposed scope is expected to cover 98% of AuM in the UK asset management market and held by UK asset owners. The requirements would not apply directly to overseas firms. However, they would provide UK firms with the flexibility to make disclosures at a group level, in respect of their global business, if they choose to do so.

Disclosure Requirements

Under the FCA’s proposals, firms would need to make both entity-level and product-level disclosures, as follows:

Entity-level disclosures

Firms would be required to publish, annually, an entity-level TCFD report on how they take climate-related risks and opportunities into account in managing or administering investments on behalf of clients and consumers. These disclosures must be made in a prominent place on the main website for the firm’s business, and would cover the entity-level approach to all assets managed by the UK firm.

The FCA notes that the report should be proportionate to the circumstances of the firm and that for some firms, the report may be relatively short. Firms would be permitted to cross-refer to disclosures made in another report where those disclosures cover the relevant content. Firms would also be able to make disclosures at a level of consolidation that the group considers would be most decision-useful for clients and consumers, and to cross-refer to disclosures made by the group or an affiliate member of the group.

Product or portfolio-level disclosures

Firms would be required to produce, annually, a baseline set of consistent, comparable disclosures in respect of their products and portfolios, including a core set of metrics. Depending on the type of firm and/or product or portfolio, these disclosures would either be:

  • Published in a TCFD product report in a prominent place on the main website for the firm’s business, and included, or cross-referenced and hyperlinked, in an appropriate client communication
  • Made upon request to certain eligible institutional clients

If asset managers provide discretionary portfolio management services to institutional clients that are themselves subject to climate-related financial disclosure obligations, those clients could request “on-demand TCFD product reports” once a year. Firms would also be required to provide data on the underlying holdings of their products once a year to clients who request it to satisfy their own climate-related financial reporting obligations.

The FCA notes that the target audience for the disclosures are investors, including institutional clients and end-user individual consumers. Therefore, firms would need to bear these recipients in mind when preparing their disclosures.

The disclosures would, in general, be mandatory, with limited flexibility for firms to provide some disclosures on a “best efforts” basis (e.g., where methodologies for certain metrics are not yet widely established). Firms would also be permitted to use proxy data or make assumptions to address any gaps.

Interaction With EU SFDR

As part of its proposals, the FCA has taken into account other related requirements that firms face internationally, including EU SFDR. The substantive provisions of EU SFDR were not onshored, and so there is no obligation for UK-authorised firms carrying on business in the UK to comply. However, firms conducting business on a cross-border basis are likely to have considered their obligations under EU SFDR in the EU jurisdictions where they carry on business. Where disclosure requirements under EU rules cover matters similar to those under the TCFD’s recommendations (e.g., certain carbon emissions metrics), the FCA has specified that it aims to ensure consistency with both EU and international requirements, as far as possible. For example, where prescribed calculation methodologies differ between the TCFD’s recommendations and the final report on draft Regulatory Technical Standards for EU SFDR (e.g., the choice of normalisation factors in the denominator), the FCA is proposing that calculations be reported according to the formulas under both regimes to promote consistency and comparability with both EU and international firms and reflect the global reach of many in-scope firms’ assets under management.

It is also worth noting that the FCA engaged closely with the Department for Work and Pensions (DWP) to make sure that its proposals align with trustee information needs in light of DWP’s draft regulations requiring occupational pension scheme trustees to embed climate-related risks and opportunities into their governance, strategy, and risk management processes, and to make disclosures in line with the TCFD’s recommendations.

Next Steps

Comments are requested by 10 September 2021, and the FCA plans to publish a Policy Statement with final rules later in the year. The FCA also plans to set out further details of “UK SFDR” in the coming months. The FCA intends to implement the disclosure requirements in two tranches, as follows:

  • Application from 1 January 2022 for the largest firms (asset managers with AuM of more than £50 billion, and asset owners with £25 billion or more in AuM or assets under administration in relation to in-scope business), with an initial publication deadline of 30 June 2023. On-demand disclosures would need to be provided from 1 January 2023.
  • Application from 1 January 2023 for other firms in scope of the proposals, with an initial publication deadline of 30 June 2024. On-demand disclosures would need to be provided from 1 January 2024.

Subsequent disclosures would need to be made by 30 June each year.

The FCA highlights that it expects firms to adopt the standards effectively, not just in anticipation of supervisory attention. Nevertheless, the regulator warns that it does expect to conduct supervision in this area in the coming years, both proactively and as a result of any identified problems.