Regulators join forces in publishing climate change adaptation reports

The FCA, Prudential Regulation Authority (PRA), The Pensions Regulator (TPR) and the Financial Reporting Council (FRC) have each published an inaugural Climate Change Adaptation Report yesterday (28 October 2021), following an invitation from the UK government under its Climate Change Act 2008.

The reports set out how climate change affects each regulators’ respective responsibilities and the actions that the financial sector is taking in response to curbing this issue.

In the FCA’s report, alongside the regulator setting out steps it has seen the financial services industry take to mitigate the risks climate change presents, it also identifies areas such as retail investments and mortgages where more work needs to be done.

The reports were published within the context of the regulators’ developing a strategic approach to climate change issues - the FCA committed to have climate considerations embedded in everything it does – from how it operates, its policy choices, as well as how it supervises and enforces against firms.

Combating climate change collaboratively 

Part of this work includes the FCA refreshing its environmental, social and governance (ESG) strategy, which was originally outlined in its 2021/22 Business Plan in July 2021. Alongside its transparency, trust and tools metrics, the regulator will bring in two new T’s – transition and team.

Transition will see the regulator develop its role in supporting a market-led transition to a more sustainable future.

Team means the FCA will embed climate and other sustainability considerations within the way it functions as an organisation.

The FCA’s appointment of Sacha Sadan as director of ESG in April 2021 contributes to the regulator’s latest promises.

Nikhil Rathi, chief executive of the FCA, said: “To successfully transition to a net zero economy requires not only that firms adapt and innovate, but that we regulators do too. That is why we are leading the effort to ensure there are consistent, trusted standards for disclosure investors can rely on.

“It is also why we are developing a strategy for how the FCA will push [the] industry, using all our regulatory tools, to ensure we can meet the climate change challenge.

”Our work in partnership with the PRA, TPR and FRC is a vital part of that effort.”

For the PRA, capital is a key part of its supervisory and regulatory tool kit. While the regulator recognises this is not the right tool to address the underlying causes of greenhouse gas emissions, it hopes it will provide resilience against the consequences of financial risks.