FCA opens discussion on the impact of climate change on financial institutions

The Financial Conduct Authority (FCA) gas today published a discussion paper on climate change and green finance.

The authority has said 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 explains how the impacts of climate change are relevant to the FCA’s statutory objectives of protecting consumers, protecting market integrity and promoting competition.

However, the paper seeks input on four areas in which the FCA consider a greater regulatory focus is warranted; climate change and pensions, ensuring those making investment decisions take account of risks such as climate change; enabling competition and market growth for green finance; ensuring disclosures in capital markets provides appropriate information on climate change; and the scope for the introduction of a new requirement for financial services firms to report publicly on how they manage climate risks.

Commenting, FCA chief executive Andrew Bailey 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.”

Furthermore, the authority has welcomed the Prudential Regulation Authority’s (PRA) consultation published today on enhancing banks’ and insurers’ approaches to managing the financial risks from climate change. The two regulators have been working closely together to develop a joined-up approach to enhance the resilience of the UK financial system to climate change.

The FCA and the PRA are setting up a Climate Financial Risk Forum, 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 the industry, as well as technical experts and other stakeholders. The authorities expect to finalise membership of the forum by the end of November and expect to hold the first meeting in early 2019.

The FCA is accepting feedback on the questions set out in the discussion paper until 31 January 2019.

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