Pension provider argues the market needs to move “as a whole” to ensure the UK is mitigating risks posed by climate change.
Large UK asset managers should be required to publish their Task Force on Climate-related Financial Disclosure (TCFD) reports from summer 2022, in line with the UK’s largest pension funds, said Will Martindale, Group Head of Sustainability for pensions risk and investment management provider Cardano Group.
This follows the Financial Conduct Authority’s (FCA) public consultation, published this week, which outlines a proposal for the introduction of climate-related financial disclosures and guidance for asset managers, life insurers and FCA-regulated pension providers. This is the next step in the UK’s plan to mandate all TCFD-aligned disclosures by 2025.
According to the consultation, asset managers currently have until 30 June, 2023, to prepare their TCFD reports, which Martindale argues is additional time they don’t actually need.
“There’s a strong case to bring this deadline forward,” Martindale said. “The consultation notes that a number of asset managers have already prepared TCFD reports.”
UK pension funds with over £5 million in AUM are required to begin preparing TCFD-aligned disclosures from 1 October, 2021, publishing finalised TCFD reports seven months after their year-end dates. The seven-month extension was granted by UK Pensions Minister Guy Opperman earlier this year, following a UK government consultation on addressing climate risk in pension schemes.
With this in mind, asset managers should instead publish in line with the existing deadlines for pension funds in order to “level the playing field”, Martindale said, thus ensuring that the “market is moving as a whole to protect savers from the environmental and financial consequences of climate change”.
“It doesn’t feel right to [Cardano] that pension funds are required to publish these disclosures ahead of asset managers, when many pension funds are investing through those asset managers,” he added.
However, Phil Spyropoulos, Partner at law firm Eversheds Sutherlands, has noted that asset managers stationed both in the UK and EU are subject to a number of other reporting requirements that require extra resources and time to implement.
“The FCA is addressing scope, timing and technical detail while acknowledging that asset managers are an interconnected piece of a wider value chain,” Spyropoulos said. “The FCA has explicitly acknowledged that many firms will also be trying to implement the EU’s Sustainable Finance Disclosure Regulation (SFDR) and is attempting to address this sympathetically”.
The SFDR regulation requires asset managers to categories their funds across three progressively greener categories: Article 6, Article 8 and Article 9. From January 2022, asset managers will be expected to comply with SFDR Level 2, which demands more underlying evidence to support these categorisations.
Responding to the FCA consultation, Martindale also said that he would like to see the requirement for greenhouse gas (GHG) carbon emissions target-setting to change from ‘comply or explain’ to mandatory with ‘non-binding’ targets.
Comply or explain means that financial institutions subject to TCFD-aligned reporting requirements have the option to not set emission targets in the short term, provided they can explain their reasons why. For smaller firms, this delay may be due to a lack of resources.
However, Martindale has argued that the FCA should mandate target-setting, in order to ensure that asset managers, pension schemes and service providers have aligned their climate ambitions, but caveat this with ‘non-binding’ rules, meaning that there is no penalty if a target isn’t achieved.
“Targets are going to be subject to a number of variables, so we don’t think it’s appropriate to introduce penalties for not meeting that target in the shorter term,” he said.
With the TCFD also recently launching a month-long consultation on updating its climate-related metrics guidance, pension funds, asset managers, life insurers and pension providers may find themselves in a stronger position to fulfil UK climate-related reporting requirements.
The FCA launched another consultation for UK corporates on proposals to enhance climate-related disclosures by listed issuers and clarification of existing disclosure obligations. Both are open for feedback until 10 September.