On 15 October 2018, the FCA published a discussion paper, DP18/8, on climate change and green finance. 

The FCA says that the effects of climate change and the associated transition to a low carbon economy may have a major impact on financial markets and on products that serve those markets. The discussion paper sets out how the impacts of climate change are relevant to the FCA’s statutory objectives of protecting consumers, protecting market integrity and promoting competition.

The discussion paper seeks input on four areas in which the FCA considers a greater regulatory focus is warranted: 

  • 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.

Comments are requested by 31 January 2019.

In a related press release, the FCA welcomes the Prudential Regulation Authority’s (PRA) consultation paper, also published on 15 October 2018 (see below), on enhancing banks’ and insurers’ approaches to managing the financial risks from climate change. The FCA and PRA have been working closely together to develop a joined-up approach to enhance the resilience of the UK financial system to climate change.

To co-ordinate action and share best practice, the FCA and the PRA are setting up a climate financial risk forum which is designed to help the financial sector manage the financial risks from climate change and support innovation for financial products and services in green finance. The forum will involve representatives from industry as well as technical experts and other stakeholders. The FCA and the PRA expect to finalise membership of the forum by the end of November 2018 and to have a first meeting in early 2019.