On 22 June 2021, the FCA published two consultation papers with proposals to extend mandatory TCFD reporting to (i) asset managers, life insurers, FCA-regulated pension providers; and (ii) issuers of standard listed equity shares, as part of the UK’s ambition to have fully phased-in TCFD reporting by 2025 (see here). 

This note focusses on the first publication, but in brief - the TCFD proposals for standard listed issuers are broadly the same as the ones that apply to UK premium listed issuers currently (see here).

Under the FCA’s proposals, most UK asset managers (i.e. UK MiFID managers, AIFMs and UCITS ManCos) and asset owners (i.e. life insurers and FCA regulated pension providers) will be expected to annually report on TCFD compliance at both an entity and at a product level.


  • the product level reporting requirements are a recent development that had not been previously suggested in the government’s TCFD roadmap, and follow similar metrics to the climate principal adverse indicators in SFDR - although unhelpfully, the FCA’s proposed calculation methodologies differ in some regard such that firms will need to prepare separate SFDR and FCA product level disclosures; and  
  • the entity level report must include a compliance statement, signed by a member of senior management.

1. Entity Scope 

The rules will apply to all FCA regulated managers (including firms with portfolio management permissions, full-scope UK AIFMs, small UK AIFMs and UK UCITS ManCos) and asset owners (life insurers and FCA regulated pension providers such as platform firms and SIPP operators providing a ready-made selection of investments) unless they fall below the £5 billion threshold noted below. Interestingly, the FCA is also proposing a broad definition of “portfolio management” so that UK private equity firms that advise group entities / clients to invest in unlisted securities on an ongoing basis will also be caught.

The FCA is proposing that the rules should not apply to:

  • FCA regulated asset managers and asset owners that have less than £5 billion in assets under management or administration (calculated on a 3-year rolling average basis); and
  • Overseas firms accessing the UK under the temporary permissions regime (TPR).

The FCA estimates that the new rules would cover 98% of assets under management in both the UK asset management market and held by UK asset owners, representing £12.1 trillion in assets managed in the UK.

2. Timing 

The FCA is proposing a phased implementation so that the rules come into effect:

  • from 1 Jan 2022 for large UK asset managers (i.e. enhanced SMCR firms that have AUM of more than 50 billion) and large asset owners (i.e. FCA regulated life insurers and pension providers that have £25 billion or more assets under management / administration ) – with the first annual report due by 30 June 2023;
  • from 1 Jan 2023 for all other UK asset managers and asset owners that aren’t excluded under the £5 billion threshold above - with the first annual report due by 30 June 2024

Feedback on the consultation paper is due by 10 September 2021 with a policy statement likely expected in Q4 of 2021.

3. Where will the new rules and guidance for asset managers/asset owners be located?

The FCA is proposing a new ESG sourcebook in its Handbook which is expected to expand over time to include rules and guidance beyond TCFD and climate topics.

4. What are the entity level disclosure obligations? 

In-scope firms must annually publish an entity level TCFD report on how they take climate-related risks and opportunities into account in managing or administering investments on behalf of clients and consumers. These disclosures must be published on a prominent place on the firm’s main website and cover all assets managed by the UK firm (including those that have been delegated to third-party managers – see below). The contents of the report must be consistent with the TCFD’s recommendations with disclosures required on (i) governance regarding climate risk and opportunities; (ii) strategy (including scenario analysis) regarding the same; (iii) risk management of climate risks; and (iv) metrics and targets used to assess and manage climate risks and opportunities. Additionally, firms that have set a climate-related target must provide detailed disclosures on their target, KPIs and how the measure progress. Whereas firms that haven't set such a target will be expected to explain why not.

As noted above, the FCA is also proposing for the entity level report to include a statement signed by a member of the firm’s senior management, confirming that the disclosures comply with the FCA’s disclosure requirements.

 5. What are the product level disclosure obligations? 

In-scope firms must produce an annual report for each in-scope product (see below), with portfolio level disclosure on each of the following mandatory metrics:

  • Scope 1 and 2 greenhouse gas (GHG) emissions
  • Scope 3 GHG emissions (disclosure for Scope 3 is delayed until 30 June 2024)
  • Total carbon emissions
  • Carbon footprint
  • Weighted average carbon intensity (WACI)

Firms are also expected to supplement these mandatory metrics with the following additional metrics on a ‘best efforts’ basis:

  • Climate Value-at-Risk (VaR)
  • Metrics that show the climate warming scenario with which a product or portfolio is aligned (e.g. implied temperature rise)
  • Other metrics - firms should provide other metrics that they consider would be helpful for investor decision-making by referring to refer to the list of recommended metrics in the CFRF disclosure guide.

Some of these metrics are very similar to the climate PAIs set out in the EU SFDR RTS – however, as the FCA has noted, the calculation methodologies differ in some cases and the FCA then expects firms to report under both regimes. Additionally, any material deviations at a product level from the entity level approach towards governance, strategy and risk management (which would be covered in the entity level reports) must also be disclosed in these product level reports.

In terms of publication, firms will either need to make the product level report:

  • public on the firm’s website – this is required for UK authorised or UK / overseas listed funds, with-profits / insurance linked funds and pre-set investment portfolios; or
  • available to clients ‘on demand’, where clients need them for their own climate related financial disclosure obligations under any applicable laws – this will be the case for bespoke separate accounts as well as funds that are not listed / UK authorised.

In addition, all in-scope firms will be required to provide data on the underlying holdings of their products ‘on demand’ to clients that request it to satisfy their own climate-related financial reporting obligations. The ‘on demand’ option is potentially more helpful than similar SFDR rules on website product disclosures, as it rightly acknowledges that for certain products (such as bespoke separate accounts) public disclosures will be inappropriate).

6. What about group level disclosures and delegations?

In-scope firms will be able to rely on group wide TCFD disclosures, provided they adequately cover the assets managed or administered by the firm. Additionally, any material deviations at the in-scope entity level from the group approach must be clearly explained (in either the TCFD entity report or group report).

The FCA has confirmed that (i) delegated mandates of asset managers; and (ii) external manager appointments by asset owners, are in scope of the firm’s entity and product level TCFD reports. However, firms will be able to cross-refer to TCFD reports published by their delegates / external managers, provided they disclose their rationale for relying on the delegate / external manager’s disclosure. In addition, delegating firms must also explain their reasons for selecting the delegate / external manager, where relevant to the TCFD’s recommendations (e.g. how climate-related matters have been taken into account in selecting delegates / external managers) and any material deviations between the delegate / external manager’s approach and the firm’s approach must be identified and explained. The proposed approach raises some interesting questions and practical challenges – noting also that ultimately the delegating asset manager / owner’s TCFD report would need to be confirmed as compliant by senior management in an accompanying signed statement. 

 7. What about the broader TCFD consultation?

The FCA’s proposals are based on the existing TCFD framework, which is currently being consulted on by the TCFD (see here), with changes expected to be introduced before the FCA’s regime goes live. The FCA is therefore proposing to adopt the amended TCFD standards into the UK framework once finalised – provided the amended standards are broadly consistent with those proposed by the FCA in its consultation paper. We expect that the FCA will provide a confirmation either way in due course.  

8. What are the FCA’s expectations regarding data gaps / challenges? 

The FCA are providing limited flexibility for firms to provide some disclosures on a ‘best efforts’ basis (e.g. where methodologies for certain metrics are not yet widely established). The FCA has also indicated that firms should use proxy data or make assumptions to address any gaps and provide transparency to investors on their methodologies and any related limitations.