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Market readiness: How has the UK responded to ESG and climate reporting and what is the future of TCFD?

Watch the full interview below

Read below for the transcript 

Could you tell us a little bit about yourself and your company

Of course – so, as a business FE fundinfo serves the global fund management industry, helping asset managers and distributors operate more efficiently in the pursuit of frictionless global fund distribution

This includes providing services such as fund data management, document production and distribution services all in one place via what we call the Fund Information Hub.

One of the key challenges we help asset managers address is their ability to comply and prepare for changing ESG regulations, whether that be in the UK or cross-borders in Europe and abroad.

So to that end, I’m the ESG Strategic Sales Manager at FE fundinfo where I lead the company’s sales activities in ESG reporting – both on the regulatory side (like SFDR or TCFD) but also on the marketing-side (like ESG factsheets or more elaborate ESG investor reporting).

Financial institutions operating in Europe no longer only face regulatory ESG reporting requirements in the European Union, but now also in the UK.  As a reporting provider, what are the main differences you see between UK’s TCFD-based disclosure requirements and the EU’ SFDR?

Well, there’s a couple of key similarities and differences between the two disclosures requirements.

Where they really share a common ground is the level at which disclosures are required

Both the SFDR & the UK’s climate-related disclosure rules specify reporting requirements on both the individual product level and the entity level

However the means by which those requirements have to be met, differ quite significantly.

Firstly – & probably most obviously –SFDR defines fixed mandatory templates which the industry is to use for the disclosure of their requirements, whereas the UK’s climate-related disclosure rules provide flexibility on how the required data & information can be presented & visualised.

Secondly, also the calculation logic behind the metrics that are to be presented vary between the two: whereas the SFDR asks for a weighted average evaluation across the entire reporting period, the UK’s climate-related disclosure rules point to snapshot data – namely, the most recent available data within the reporting period.

Thirdly, the two requirements differ in terms of scope: whilst the SFDR clearly defines different disclosure requirements for different types of funds (whether that’s a product under Art. 6 / 8 / 9), the UK’ climate-related disclosure rules apply to any funds – regardless whether funds have a sustainability intentionality or not.

How ready is the market to comply with the UK’s climate disclosure requirements? What challenges do you currently perceive among your clients?

I’d say one of the main challenges faced by the market is still a lack of expertise, understanding and knowhow in the ESG space.

Although ESG considerations and investment practices are steadily increasing across the market, there is yet only a limited number of trained professionals with deep expert knowledge in this area. As such many clients struggle to truly understand and interpret the data which they are now required to report on.

In addition to that, the second challenge, is that there’s still a timing-gap in terms of data. Whilst the largest UK Asset Managers and Asset Owners have already had to disclose their first climate reports for their products this summer the respective disclosure requirements on corporate level have not yet entered into force.

Both the ISSB’s reporting standards (based on the TCFD’s recommendations) as well as the EU’s Corporate Sustainability Reporting Directive (CSRD) will only require company-level sustainability disclosures to be published starting 2025.

So there’s obviously a certain gap between the time when climate related disclosures have to be published for investments & the time when the underlying corporates of those investments are asked to disclose their credentials.

Fortunately, data providers can however already today offer quite a good data coverage thanks to sophisticated modelling schemes to estimate emissions where they are currently not yet reported & thereby analyse potential future scenarios. 

Speaking about ISSB: In August the Financial Stability Board announced that the TCFD will be disbanded & the ISSB to take over the monitoring of the progress on companies’ climate-related disclosures from the TCFD. Do you expect the term “TCFD” to disappear in the market?

Its hard to say at this stage, because the TCFD acronym is so commonly used and recognised, that it’ll probably not disappear quite so fast

References to TCFD within official and regulatory documents may be replaced relatively fast

But – on a wide scale – the term TCFD will probably still stick in people’s heads for a while and only slowly be phased out across the next months and years to come.