First round of TCFD reporting for asset managers passes in the UK: What are the challenges and opportunities?

Now that the dust has settled on the first annual TCFD reporting requirements for UK asset managers and owners, we reflect on the challenges many firms face in compiling their inaugural TCFD entity report, and how they can capitalise on the opportunities. As we look ahead to 2025, firms must focus resources on improving data availability, developing their risk management processes, and preparing for future regulation.

The challenges

Data

As the Financial Conduct Authority (FCA) anticipated, asset managers encountered difficulties in aligning to the TCFD recommendations due to data gaps and methodological challenges. Most firms resorted to proxy data to ensure that reports were complete by June 30^th. The recommendations ask for asset managers to integrate climate-related risks into their overall risk management practices, however, this requires significant resources.  Therefore, to comply with the FCA rules and align to the TCFD recommendations, asset managers must continue to allocate resources to improve data availability and methodologies.

Transition Plans

UK firms are heavily encouraged to develop and disclose a climate transition plan. A transition plan poses a distinct challenge as it demands overarching targets (including emissions reduction targets), interim milestones, and actionable steps to achieve these targets. While this is currently just guidance from the FCA, firms can expect transition plans to be explicitly mandated in the future. To prepare for this, they should be building on the technical expertise, governance structures, and firm-wide buy-in that has been initiated through the TCFD reporting process.

Varying interpretations of TCFD recommendations and the FCA’s requirements

Some firms take a dogmatic view that managing climate risk necessitates immediate divestment from high-emitting sectors. Others understand climate scenario analysis to be a prescriptive prediction of the future, rather than a strategic decision-making and engagement tool. Many firms also continue to report on climate risk on their operations, which although required under other TCFD regulations (CFD or listed companies), is patently not the aim of PS21/24, and EcoAct expects further clarifying guidance from the FCA on this.

The opportunities

Emphasising greater transparency on how your firm identifies and manages climate risk, can help your clients to make more informed investment decisions. Adoption of the PS21/24 rules will offer a strong competitive advantage over the market. In addition, the FCA rules have now given firms a clear and structured blueprint that will support and enhance a wider sustainability strategy, whilst preparing them for further upcoming regulation, such as IFRS S2, TPT, and the EU’s CSRD.

Next steps

The UK remains at the forefront of climate risk reporting. For asset managers, the mandated TCFD entity and product reports represent a crucial step towards enabling clients and customers to make better-informed, long-term investment decisions. However, this is far from done. Sustained improvements are still needed to fully implement TCFD recommendations on climate risk and to drive the necessary business transformation for a successful transition to a low-carbon economy.

Some opportunities require support to navigate the complexities of global climate regulations, a net-zero transformation, and the financial system. EcoAct’s expertise can help prepare your firm for annual TCFD and wider sustainability disclosures by providing services such as:

1. TCFD entity and product report narrative support and review
2. TCFD and FCA gap analysis
3. Peer benchmarking
4. Target setting
5. Climate scenario analysis
6. Calculating financed emissions
7. Climate transition planning

In support of this, we have developed a TCFD Reporting for Asset Managers factsheet that will guide you through the details of the FCA rules, this can be downloaded here.

Please get in touch if you want to know more.