FCA opens a discussion on the impact of climate change and green finance on financial services

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

Andrew Bailey, Chief Executive at the FCA said:

“Climate change presents a disruptive and potentially irreversible threat to the planet. The impact of climate change on financial markets is uncertain but legal frameworks – at a global, European and UK level – have already begun to adapt to reflect a move to a low carbon economy.”

“The FCA can play a key role in providing more structure and protection to consumers for green finance products and ensuring that the market develops in an orderly and fairway which meets users’ needs.”

The FCA welcomes the Prudential Regulation Authority’s (PRA) consultation published today 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 PRA and FCA are setting up a Climate Financial Risk Forum. It 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 PRA and FCA expect to finalise membership of the forum by the end of November, having a first meeting in early 2019.

The FCA is now seeking feedback on the questions set out in this Discussion Paper and would like all those interested in financial services to consider the issues raised in this paper and provide comments by 31 January 2019.

Notes to editors

1. DP18/8: Climate change and green finance[1]
2. On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
3. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this, it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
4. Find out more information about the FCA[2].