The effects of climate change and the associated transition to a low carbon economy may have a major consequences for financial markets and on products that serve those markets, the regulator says.
The discussion paper sets out how climate change is relevant to the FCA’s statutory objectives of protecting consumers, protecting market integrity and promoting competition.
The Discussion Paper seeks input on four areas in which the FCA considers a greater regulatory focus is warranted:
• climate change and pensions – ensuring that those making investment decisions take account of risks including climate change
• enabling competition and market growth for green finance
• ensuring that disclosures in capital markets appropriately give adequate information to investors of the financial impacts of climate change
• the scope for the introduction of a new requirement for financial services firms to report publicly on how they manage climate risks
Andrew Bailey, chief executive at the FCA, 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.”
The FCA 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 regulator said the FCA and PRA had been “working closely together to develop a joined-up approach to enhance the resilience of the UK financial system to climate change.”
The bodies revealed they were 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 industry as well as technical experts and other stakeholders.
The PRA and FCA hope to finalise membership of the forum by the end of November with a first meeting expected in early 2019.
The FCA is now seeking feedback on the questions set out in the discussion paper.
Comments must be sent to the regulator by 31 January 2019.