UK regulators call on financial industry to meet the climate change challenge

With COP26 around the corner, the UK financial regulators have set out the actions that they, and the financial sector, are taking in response to climate change.

The Financial Conduct Authority’s first Climate Change Adaption Report notes that it is embedding ESG considerations (and, in particular net zero expectations) across everything it does. This includes not only its day-to-day supervisory work but also its authorisations processes. Firms designing sustainable finance products can expect the FCA to challenge how well the ESG characteristics of these products align with their sustainability claims.

For its part, the Prudential Regulation Authority highlights the significant progress that firms have made in applying PRA guidance on the management of climate-related risks. From next year, the PRA plans to start flexing its muscles where it considers firms are making insufficient progress. This will include asking the largest firms to report on how they have embedded climate-related financial risks into their existing risk management frameworks.

The Pensions Regulator plans include issuing guidance about what it will look for from pension schemes as they assess, manage and prepare to report on climate-related risk and opportunities.

The Financial Reporting Council also contributed to a joint statement from the regulators and intends to publish its own Climate Change Adaptation Report later in the year.

Our summary of the regulators’ reports includes a high-level timeline of upcoming ESG work and initiatives by the FCA and PRA.