CP21/17: what do the proposals mean for accountants and auditors?

It will not come as a shock to most that climate change and climate action is at the forefront of the national agenda. The recently published Intergovernmental Panel on Climate Change report provided a stark warning as to the possible consequences of climate change, should action not be taken without delay.

This article was co-authored by Jessica Randall, Litigation Assistant, London.

For these sectors, the investment choices made are key to tackling climate change. There remains a risk that some firms will simply pay lip-service to their investors and/or customers by making broad claims as to the “green” nature of their investments. ‘Greenwashing’ i.e. unjustified claims about environmental practices, is a growing issue.

In November 2020, the UK Government set out the roadmap towards mandatory climate-related disclosure across the UK economy by 2025. In line with this roadmap, in June 2021 the FCA released Consultation Paper 21/17 (CP21/17), which set out proposals to extend the mandatory climate reporting requirements on asset managers, life insurers and FCA regulated pension providers (in-scope firms), to ensure consumers will be better informed of their investments. This, in theory, will lead to consumer protection from unsuitable products and, most importantly, will drive investors towards greener projects and activities.

The FCA’s overarching aims are to push investors into greener investments by imposing disclosure requirements on their investment providers, thus facilitating a move towards clean energy and a less carbon-intensive environment.

Requirements for in-scope firms

CP21/17 proposes that in-scope firms make disclosures on two levels:

  • Firms will be required to publish entity level disclosures by completing a TCFD (Task Force on Climate-related Financial Disclosures) report on how they take climate change risks and opportunities into account when managing clients investments.
  • Portfolio based disclosures - firms will be required to produce a baseline net of consistent comparable disclosures in respect of their products and portfolios.

Full rules and guidance will be set out in the new ‘Environmental, Social and Governance (ESG) Sourcebook’ in the FCA Handbook, which is anticipated to expand to include all other climate-related issues and wider topics.

The proposal covers 98% of assets under management in both the UK market and held by UK asset owners, which amounts to around £12.1 trillion in UK assets. It follows that there are a large number of stakeholders who will also be directly affected by the proposal including accountants and auditors in their capacity as advisors to in-scope firms and, of course, insurers.

Issues arising out of CP21/17 for stakeholders

The current proposals leave a number of gaps that ought to be carefully considered by stakeholders, including accountants and auditors, in their capacity as business advisers. Failure to recognise the issues and advise in-scope firms properly as to their disclosure obligations may lead to claims against accountants and auditors.

The FCA has indicated the aim for the new disclosure requirements is to coexist alongside other regulations, such as the EU Sustainable Finance Disclosure Regulation (SFDR) when it considers cross-border business, and to ensure the requirements work together coherently.

Where the two methodologies differ, the FCA intends to require firms to report according to the regulations under both schemes. Such a proposal is inevitably going to cause issues for in-scope firms. This is particularly so, as the picture remains unclear as to how these regulations will coexist.

There is also the potential for similar disclosure requirements being developed in other markets, including the US and Asia. This will inevitability increase the complexity of complying with the regulations and leave in-scope firms at risk of breaching disclosure requirements.

Advisers will need to carefully consider the interplay between conflicting regulations, as well as the extent of reporting requirements, particularly where there is a cross-border element to business.

Another issue facing in-scope firms is that disclosures are required to be made at entity level, however, climate-related matters tend to be more relevant to a firm’s global activities. In addressing this concern, the FCA is permitting firms to consider what level would be most useful to their clients and make relevant disclosures. Identifying the relevant disclosures is likely to require extensive cross referencing of all client needs. This will be a time consuming and detail driven undertaking, with many in-scope firms turning to their advisers for assistance.

The lack of clarity from the FCA in this respect will leave many firms open to challenge of the disclosures they make and accountants and auditors should be aware of this when advising their clients.

Additionally, in some cases, there is a lack of clarity regarding the necessary climate data. This issue has been recognised by the FCA, which suggests firms use assumptions to fill in any data gaps. This ‘solution’ rings alarm bells. Making assumptions with regards to data has the scope to go wrong and lead to regulatory breaches. This may also lead to PI claims against accountants and auditors; this lack of clarity as to disclosures and the potential for firms to make dangerous assumptions places a significant burden on these professions.

Next steps

CP21/17 closed on 10 September 2021 and responses will be considered before entering into a two stage approach to initiation of the new disclosure requirements:

  • For asset managers managing over £50 billion worth of assets, the rules will come into effect by 1 January 2022 with the first disclosure required on 30 June 2023.
  • For all other asset managers, the rules will take effect from 1 January 2023, with the first disclosures being required from 30 June 2024.


Accountants and auditors should stay abreast of the consultation outcome. They should also remain aware of tightening disclosure requirements and how they should be met in practice, given the current lack of clarity.

When acting in their capacity as advisers to in-scope firms, accountants and auditors will need to heed the new disclosure requirements, and be ready to advise their clients as to the new duties.

Read other items in Professions and Financial Lines Brief - September 2021

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