Climate Related Bureaucracy to be Imposed by the FCA

It’s summer holiday time, so what better time to issue public consultations of which there are a spate of late? Is this because the authors wish to clear their desks before the holidays, or because they hope to get more or fewer responses at this time of year?

Anyway here are some comments on the first one I have looked at which is a consultation from the Financial Conduct Authority (FCA) on “Enhancing climate-related disclosures by asset managers……(CP21/17).”.

The changes proposed to the FCA Handbook which will apply to all asset managers, life insurers and pension providers aims to tackle the “climate challenge” by providing more information on climate-related risks.

But there will be substantial costs imposed with no obvious benefits. For example, asset managers are expected to incur implementation costs of £202 million with on-going annual costs of £116 million. What are the benefits? This is what the consultation report says: “We do not consider that it is reasonably practicable to quantify the benefits of our proposals. We have therefore not sought to quantify the benefits to the market of addressing the identified harms”. In essence they are saying that there is no obvious cost/benefit justification.

But they do argue that “the estimated costs of compliance are small relative to total assets under management of in-scope asset managers and asset owners. Total one-off and ongoing costs represent 0.002% and 0.001% of total assets under management for asset managers and asset owners, respectively”. They may be small figures but bureaucracy tends to grow over time.

How will such disclosures make any difference to climate? Won’t it just become a virtue signalling exercise by asset managers?

I have posted the following response to the consultation. I suggest readers say something similar:

“I have not answered the individual questions posed because I consider the imposition of the need for asset managers and others to produce climate related disclosures will be a costly exercise with no benefits. There are significant costs being imposed with no clear benefit to the investors in the assets covered. It’s just adding more bureaucracy to an already high level of regulation which will deter new entrants to financial markets and reduce competition. It is adding costs to investors with no benefit.

The FCA seems to barely have the resources to police and enforce the existing regulations in the FCA Handbook so adding more superfluous regulations is pointless. It is not at all clear how new ESG regulations will improve the returns to investors”.

Reference: CP21/17 Consultation Paper: https://www.fca.org.uk/publications/consultation-papers/cp-21-17-climate-related-disclosures-asset-managers-life-insurers-regulated-pensions

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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