Align metrics for meaningful TCFD reporting, industry says
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Industry has raised concerns that the Department for Work and Pensions and the Financial Conduct Authority are proposing different emissions metrics in their respective consultations on reporting in line with the Taskforce on Climate-related Financial Disclosures.
The FCA’s consultation on requiring TCFD reporting from listed firms, asset managers and providers closed last Friday, having been launched in June, two weeks after the DWP published regulations and statutory guidance on TCFD reporting for trust-based pension schemes.
For asset managers and life insurers, the FCA was proposing to apply the TCFD rules to those with more than £5bn in AuM on a three-year rolling average, capturing 98% of the firms in scope – 140 asset managers and 34 asset owners – covering £12.1tn of assets managed in the UK. Disclosures would have to be made annually both at an entity level and at a product or portfolio level, and would need to be published on the website or made available to institutional clients on request.
The rules were planned to be introduced in two stages, with the rules applying to the very largest firms from January next year, and a year later to all those with at least £5bn in AuM.
Comparability is key for investors
Industry has welcomed the rollout of TCFD reporting but has pointed out inconsistencies between the DWP’s and FCA’s expectations on the emissions metrics to be used.
The FCA’s proposals are an important step in setting requirements for asset managers, life insurers and FCA-regulated providers, acknowledging the effort made into ensuring the government’s roadmap for tackling climate change is delivered, said Joe Dabrowski, deputy director policy at the Pensions and Lifetime Savings Association.
Dabrowski added: “However, we are concerned that different views on reporting metrics have been proposed across the two consultations. As schemes and investors generally have identified comparable and consistent data as a key issue we would urge the FCA, TPR and DWP to find a common set of expectations to ensure the whole of the investment chain is aligned, and can pull in the same direction.”
He also identified "some misalignment of timetables for the reporting of information”, but said this could be overcome by regulators’ pragmatic approach.
Will Martindale, group head of sustainability at fiduciary manager Cardano, agreed, saying there is a need for standardisation to allow for comparability.
“We would welcome further clarity on metrics,” he said, adding: “TCFD reporting is intended to allow for the flow of climate change-related risks and opportunities through the intermediation chain. While climate metrics are evolving, and we want to continue to encourage innovation, we think the industry would benefit from a degree of standardisation. This allows asset owners to make comparisons across funds.”
Metrics should be accompanied by narrative-based disclosures, he added. This could, for example, provide context in cases where there are allocations to high carbon assets and the asset manager is engaging with the firm to support transition plans.
In other areas, Cardano wants the FCA to move faster than it has proposed and capture more firms and allow large funds to have the data they need when their own requirements come into force.
“The largest asset managers should publish their TCFD report by mid-2022 – as is the case for the largest UK pension funds,” said Martindale, adding that in subsequent years, all asset managers should be in scope regardless of their size.
He also wants to see alignment with the rules for trust-based pension funds by making the publication of climate-related targets a requirement for the firms in scope.
Do you expect there to be standardisation of emissions metrics in future?