As climate-related risks increasingly shape global financial systems, regulatory bodies are stepping up their oversight to ensure firms are resilient, transparent and accountable. In the UK, the Financial Conduct Authority (FCA) has adopted a strategic and evolving approach to climate change and sustainable finance, placing sustainability at the heart of its regulatory agenda. From mandating climate disclosures to cracking down on greenwashing, the FCA is setting clear expectations for regulated firms to manage environmental risks and support the transition to a low-carbon economy.
- Strategic Commitment: Delivering Net Zero in Financial Services
The FCA is committed to ensuring that financial markets play their part in supporting the UK’s transition to a net-zero economy. As part of its statutory objectives, the FCA aims to:
- Protect consumers by ensuring they have access to accurate, non-misleading sustainability information.
- Maintain market integrity by addressing greenwashing and promoting consistent ESG disclosures.
- Promote competition by fostering innovation in green finance and sustainable investment.
To deliver these objectives, the FCA integrates climate considerations into its wider regulatory framework and aligns its activities with government targets, including the UK’s commitment to net-zero greenhouse gas emissions by 2050.
- Key Regulatory Focus Areas
A. Sustainability Disclosure Requirements and Investment Labelling
One of the FCA’s flagship initiatives is the Sustainability Disclosure Requirements (SDR), which are designed to ensure that sustainability-related claims by firms are clear, consistent and trustworthy. This regime includes:
- Sustainability Labels for investment products (such as “Sustainable Focus” or “Sustainable Improvers”).
- Detailed disclosures on product sustainability objectives, investment approach and stewardship activities.
- Naming and marketing rules to prevent misleading impressions of sustainability.
The anti-greenwashing rule, introduced as part of PS23/16, came into force on 31 May 2024, requiring all FCA-authorised firms to ensure that any sustainability claims made in communications or marketing are fair, clear, and not misleading. Supporting guidance was provided in FG24/2.
B. TCFD-Aligned Climate-Related Financial Disclosures
To improve market transparency and risk management, the FCA has rolled out climate disclosure rules aligned with the Task Force on Climate-related Financial Disclosures (TCFD). These rules apply to:
- Asset managers and asset owners (e.g. life insurers, pension schemes)
- Listed companies (premium and standard segments)
Key disclosure areas include:
- Governance of climate-related risks
- Strategy and scenario analysis
- Risk management processes
- Metrics and targets
These requirements will eventually be superseded by UK Sustainability Reporting Standards (UK SRS), based on the ISSB’s IFRS S1 and IFRS S2 frameworks. The FCA intends to consult on how listed companies should adopt the UK SRS by the end of 2025.
- Strengthening Market Trust: Tackling Greenwashing
Greenwashing, where firms exaggerate or misrepresent sustainability claims, is a major concern for the FCA. Through supervisory reviews, enforcement and the anti-greenwashing rule, the FCA seeks to:
- Enhance accountability for sustainability-related marketing
- Protect retail and institutional investors from misleading ESG products
- Drive best practice by promoting transparency and comparability
The FCA encourages firms to review all ESG-related promotions and marketing against the anti-greenwashing guidance in FG24/2, and ensure internal controls are robust.
- Governance, Stewardship and Incentives
The FCA promotes strong governance and stewardship to ensure that sustainability is embedded within firms’ cultures and decision-making processes. In Discussion Paper DP23/1, it explored the role of:
- Board oversight of sustainability risks
- Executive remuneration and incentives
- Staff training and ESG capability
- Stewardship policies, particularly for asset managers and institutional investors
Although DP23/1 does not propose new rules at this stage, it invites industry feedback and sets the direction for potential future regulation.
- International Collaboration and Regulatory Alignment
The FCA is active in global regulatory forums, including:
- International Organization of Securities Commissions (IOSCO) Sustainable Finance Task Force
- Network for Greening the Financial System (NGFS)
- International Sustainability Standards Board (ISSB)
These efforts support the UK’s ambitions to remain a leader in sustainable finance and ensure consistency in climate-related disclosures globally.
The FCA is also aligned with the UK Government’s Green Finance Strategy, working alongside HM Treasury, the Prudential Regulation Authority (PRA), and the Bank of England to shape cross-sectoral policy.
- Internal Leadership: Sustainability within the FCA
Sustainability is embedded in the FCA’s organisational strategy. A Sustainable Finance Director oversees climate and sustainability initiatives and reports directly to the Chief Executive. The FCA publishes its own Climate-Related Financial Disclosure Report, in line with TCFD recommendations, which outlines:
- Its internal climate governance structures
- Climate-related risks to its operations
- Steps to reduce its own environmental footprint
This internal alignment reinforces the FCA’s credibility and leadership in climate policy.
- Adaptation and Supervision
Through its 2021 Adaptation Report and ongoing supervisory work, the FCA monitors how financial firms are managing physical and transition risks. It expects firms to assess:
- Vulnerabilities in business models, portfolios and supply chains
- Operational resilience to extreme weather events
- Transition planning and climate stress testing
The FCA uses these insights to inform risk-based supervision and guide future rulemaking.
Conclusion: Enhancing Firm Readiness and FCA Consistency
Across its regulatory framework, the FCA:
- Addresses climate and ESG risks through mandatory disclosure and antigreenwashing measures.
- Encourages alignment with evolving international standards, including UK SRS and ISSB guidelines.
- Strengthens internal and market governance through guidance, discussion and supervisory engagement.
- Leads by example, embedding sustainability within its internal risk and decisionmaking processes.
How Complyport Can Help
Complyport excels in guiding firms through this evolving landscape, offering:
- Clear interpretation of FCA Handbook regulations, including SDR, labelling and TCFD/UK SRS disclosure rules.
- Expert support ensuring your governance, disclosures, training and stewardship frameworks meet regulatory expectations.
- Insight into transition plan disclosures and readiness for upcoming consultations and standards.
- Audits and training to mitigate greenwashing risks and uphold Consumer Duty.
Contact us today to speak with a Subject Matter Expert and find out how we can support your firm’s sustainability compliance.
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