The Financial Conduct Authority (FCA) has released a discussion paper, seeking views about how it develops to ensure it takes decisions in the public interest and supports innovation in what it describes as “the growing market for green finance”.

FCA chief executive Andrew Bailey points out that the disclosure, classification and measurement of such financial products require some thought.

“The FCA has a role to play in providing more structure and protection to consumers for these products, ensuring the market develops in a fair, orderly way to meet users’ needs,” states Bailey in the report.

The paper sets out how the different impacts of climate change could impact the FCA’s long and short-term objectives; some of the opportunities and risks the transition to a low carbon economy presents in the UK’s financial services markets; and the action it will take in to ensure markets function well and deliver good outcomes for consumers.

It notes that there are currently 70 ‘green bonds’ currently listed on the London Stock Exchange, worth more than $22bn (£16.9bn). Some 38 ‘green companies’ have raised $10bn in London, including 14 renewable investment funds.

‘Green loans’ and ‘green mortgages’ are also available.

From a corporate perspective, few companies are disclosing the impact of climate change on their company, which could impact on their value if not disclosed adequately.

Climate change’s impact also affects long-term valuations and prices, such as those used in both the pensions and insurance sectors.

“This is a serious undertaking, and there’s a lot at stake,” stated a transcript of a speech by Christopher Woolard, executive director of strategy and competition, delivered at the FCA’s Innovating for a Greener Great Britain event in London last week.

“Financial losses from disorderly or volatile adjustments to the value of listed and unlisted securities. Consumers investing in misleading products. Increases in insurance claims where providers have not adequately managed their risks,” stated Woolard.

“Major global events impacting on the value of investments, affecting pensions, savings and other direct investment products. The impact of meeting the Paris Agreement on individual households. The list goes on.

“Our job is to make markets for financial services work well. Part of that is ensuring that financial services are adequately prepared to cope with the changes on the horizon.”

Responses to the discussion paper are required by 31 January 2019.

Kevin Reed is one of the UK’s most senior accounting and finance journalists. He is a former editor of Accountancy Age and Financial Director, and writes regularly on corporate and professional services governance.

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