Taking stock of sustainability at the Financial Conduct Authority

As the year draws to a close, REP talks to the UK regulator’s sustainable finance head, Alicia Kedzierski, about its work in 2025

The Financial Conduct Authority (FCA) launched a consultation on Monday on the future of ESG ratings in the UK.

The regulator is asking for feedback on plans to strengthen the rules for ratings providers as part of new powers it’s been granted by the government.

Among the objectives of the initiative, the FCA says it wants “rated entities to better understand how they are assessed and be able to engage more effectively with rating providers”.

It plans to address the fact that, in many instances, companies “have no obvious means of access at all” to ratings providers – meaning they can’t correct factual errors and “struggle to understand how they are being assessed and how to respond to, or challenge, ratings or underlying data in a meaningful way”.

The consultation is the latest in a long list of sustainability-related initiatives from the FCA.

“There are many layers to our mandate, including market integrity, consumer protection, competitiveness, and most recently the growth and international competitiveness objectives,” explains Alicia Kedzierski, the regulator’s head of sustainable finance.

“Ultimately, we care about consumers and investors getting the right information. That doesn’t mean all information – just the stuff that will actually make a difference to them.”

“You can always ask for more,” she says, but it’s a game of diminishing returns.

“At some point the insight can get limited, so we’ve got an important job to do in terms of getting the balance right, especially in the coming years.”

ISSB

As well as strengthening the transparency and accountability of ESG ratings, the FCA is tackling the information problem by rowing in on corporate sustainability disclosures.

After some delay, it’s expected to launch another consultation in the new year, this time on adopting rules based on those developed by the International Sustainability Standards Board (ISSB).

“We’ll be asking firms what they think, and how they believe we could best structure the consultation,” says Kedzierski.

The FCA has long required listed companies to report against the recommendations of Taskforce on Climate-related Financial Disclosures (TCFD), but it plans to replace these rules with ISSB-based ones as part of a broader move by the UK government.

TCFD is more narrative, Kedzierski points out, with its focus on explaining to the market the types of risks and opportunities that a particular business model is exposed to.

“It was always meant to be a stepping stone towards talking about actual numbers,” she says, and this is where the ISSB requirements will come in.

Transition finance

Kedzierski says the FCA has also “been considering what our role will be” within the climate adaptation and transition finance spaces “quite extensively”.

Earlier this year, Real Economy Progress revealed that the regulator had updated its regime for corporate prospectuses to include climate transition plans.

The new rules say that, from January, if a company has published a plan containing “material” information, it will have to include a summary of it in its investor prospectus.

To reduce liability risks, the FCA made transition plans into ‘protected forward-looking statements’, meaning companies can’t be penalised if they make commitments in good faith, but don’t manage to fulfil them.

The next step will be to introduce transition plan requirements for listed companies and regulated investment houses. A consultation on the topic is also slated for the new year.

“I’m excited about our transition finance pilot,” adds Kedzierski, referring to another initiative the FCA is involved in through its partnership with the Prudential Regulation Authority, the Climate Financial Risk Forum.

Kedzierski won’t be drawn on what’s currently being undertaken under the pilot, but Real Economy Progress understands that a new workstream will be announced shortly, along with a subgroup to develop sector-specific transition finance metrics.