Financial services regulators have joined forces to address the attitude and approach of financial services firms to climate change.

The Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA), The Pension Regulator (TPR) and Financial Reporting Council (FRC) have partnered to publish three climate change adaption reports.

The reports set out how climate change affects regulators’ responsibilities and the actions the regulators are taking in response.

The reports are in response to the Government’s invitation under the Climate Change Act 2008.

The report from the FCA sets out the steps the industry has taken to mitigate the risks of climate change and identifies retail investments as one area where more needs to be done. 

The FCA added that it is currently developing its strategic approach to climate change issues which, “will see climate considerations embedded in everything we do, from how we operate, to our policy choices, to how we supervise and enforce against firms.”

Nikhil Rathi, CEO of the FCA, said: “To successfully transition to a net-zero economy requires not only that firms adapt and innovate, but that we regulators do too. That is why we are leading the effort to ensure there are consistent, trusted standards for disclosure investors can rely on. It is also why we are developing a strategy for how the FCA will push industry, using all our regulatory tools, to ensure we can meet the climate change challenge.

“Our work in partnership with the PRA, TPR and FRC is a vital part of that effort.”

The report from TPR sets out guidance clarifying what it will look for from pension schemes as they assess, manage and prepare to report on climate-related risk and opportunities. 

The Pension Regulator added that is working with the Department for Work and Pensions to share best practice in climate risk reporting.

The report from the PRA acknowledged that while some firms have made progress around the management of climate-related financial risks, there is still a long way to go.

The PRA added that climate-related financial risks will be a focus for the regulator and it will use its “full supervisory and regulatory toolkit” to make sure firms demonstrate good understanding and management of climate change.  

Sir Jon Thompson, CEO of the FRC, said:  “There is clearly a great deal of focus both on how companies report the impact of their activities on the environment and wider environmental and social challenges to which companies must respond.

“Companies, auditors, actuaries, investors and others also face a changing regulatory environment and reporting and business activities need to adapt to meet these demands. To do this, a range of challenges need to be addressed to ensure that we build an effective framework fit for the future.

“The FRC encourages companies to report using the TCFD and SASB frameworks and supports the development of global standards for sustainability reporting by the IFRS Foundation. Whilst a lot of good work has happened, there is more to do.”