FCA PS21/24: Climate disclosure rules for life insurers
FCA PS21/24: Climate disclosure rules for life insurers embed TCFD into the core of UK life balance sheets and savings propositions, reshaping how climate risk is governed, measured and communicated to policyholders and regulators alike. The rules capture life insurers in their capacity as asset owners and fiduciaries, forcing a step change in climate data, modelling and governance across both with‑profits and unit‑linked books.
Implications for insurance CIOs and capital teams • Life CIOs must produce an annual, public, entity‑level TCFD report explaining how climate risks and opportunities are integrated into investment and ALM decisions across all client assets. • Product‑level disclosures, including a core set of climate metrics and climate value‑at‑risk, will expose the climate profile of specific with‑profits, annuity and unit‑linked portfolios to distributors, employers and end‑customers. • Climate data gaps and the use of proxies or assumptions are now explicitly governed by FCA rules, constraining how insurers can “smooth” weak data and requiring transparent methodologies. • Investment governance must be demonstrably aligned with the UK’s net‑zero‑by‑2050 commitment, increasing scrutiny on high‑emitting sectors, transition plans and stewardship strategies. • Smaller life firms above the £5 billion exemption threshold must build climate disclosure capabilities on a compressed timetable, with first public reports due by 30 June.
The FCA’s PS21/24 policy statement, published in 2021, finalises a new climate disclosure regime for asset managers, life insurers and FCA‑regulated pension providers, anchored in the Taskforce on Climate‑related Financial Disclosures (TCFD) framework. For life insurers, this is not a marketing overlay but a regulatory requirement that directly targets how they manage and administer assets on behalf of clients and consumers.
At its core, PS21/24 creates an ESG sourcebook that hard‑wires TCFD‑consistent disclosures into the FCA Handbook for in‑scope asset managers and asset owners. The regime is explicitly framed around firms’ fiduciary role, requiring them to show how climate‑related matters are integrated into investment processes and portfolio construction, rather than simply reporting portfolio emissions in isolation. For life insurers, this means a single narrative and quantitative report covering the investment activities of the life company in its role as asset owner and fiduciary for policyholders, workplace savers and other beneficiaries.
The FCA requires this entity‑level TCFD report to be published in a prominent place on the firm’s main website, making it easily accessible to policyholders, intermediaries, analysts and NGOs. Public visibility increases the pressure on internal consistency: climate governance, risk management and metrics disclosed here will be compared against Solvency II ORSA narratives, stewardship reports and group‑level sustainability commitments. Because the disclosures must explain how climate risks and opportunities are taken into account in managing or administering investments, CIOs will need to evidence how climate considerations influence strategic asset allocation, manager selection, credit underwriting standards and engagement or escalation policies. For annuity writers, this will naturally intersect with long‑duration credit portfolios and illiquid assets; for unit‑linked and workplace savings businesses, it will focus more on fund ranges, default strategies and manager oversight. The FCA links these rules to the UK’s commitment to achieve a net‑zero economy by 2050, as set out in the Chancellor’s remit letter in March 2021. That connection means entity‑level TCFD reports will be read as evidence of how life insurers are aligning their investment strategies with the transition pathway, including how they balance decarbonisation with policyholder returns and prudential constraints. Product‑ and portfolio‑level disclosures: metrics and climate VaR
Alongside the entity‑level report, PS21/24 mandates product‑ or portfolio‑level disclosures providing a baseline set of consistent, comparable information, including a core set of metrics. For life insurers, these disclosures will apply to products and portfolios where the firm is managing or administering assets on behalf of clients and consumers, such as unit‑linked funds, with‑profits funds and potentially other pooled investment options.
The FCA expects these product‑level reports to include, as far as reasonably practicable, climate value‑at‑risk (climate VaR) calculations in addition to the core set of climate‑related metrics. Climate VaR introduces an explicitly risk‑based, scenario‑driven view of potential climate‑related losses or value impacts at the product or portfolio level, going beyond static emissions metrics. For CIOs and ALM teams, this creates a direct bridge between internal climate scenario analysis and client‑facing disclosures. The methodologies, scenarios and assumptions used to calculate climate VaR will need to be strong enough to withstand scrutiny from sophisticated institutional clients and consistent enough with internal risk models to avoid conflicting messages about portfolio resilience. The requirement for a core set of metrics at product level also pushes life insurers to standardise climate data across their investment universe. This will influence manager mandates, data vendor selection and the design of internal data lakes, as firms seek to ensure that all in‑scope products can be reported on a comparable basis, even where underlying assets are illiquid or privately held. Data gaps, proxies and assumptions: explicit guardrails
One of the most operationally important aspects of PS21/24 is the FCA’s decision to finalise the rules with additional provisions and guidance on data gaps and the use of proxies or assumptions. Having considered consultation feedback, the FCA added further rules in this area, signalling that it expects firms to treat climate data limitations as a managed risk, not an excuse for weak disclosure.
This has several implications for investment and risk functions. First, model governance around climate data will need to be tightened, with clear ownership, validation and documentation of proxy approaches.
For the largest life insurers, the rules apply from 1 January 2022, requiring them to have governance, data and reporting frameworks in place to support both entity‑level and product‑level disclosures. Smaller life firms that still exceed the £5 billion exemption threshold have an additional year, but must nonetheless build capabilities quickly to meet the same standards.
Across the in‑scope population, the FCA requires that the first public disclosures in line with the new requirements be made by 30 June 2023. That deadline applies to both the entity‑level TCFD report and the associated product‑ or portfolio‑level disclosures, effectively synchronising the first full cycle of climate reporting for life insurers and other in‑scope firms.
The combination of a size‑based phase‑in and a common first‑disclosure deadline creates a compressed implementation window for many life insurers, particularly those close to the £5 billion threshold that may have delayed investment in climate data and modelling. For CIOs and capital teams, this increases the importance of prioritising climate reporting infrastructure alongside other regulatory change programmes. Net‑zero alignment and the broader regulatory context
The FCA positions PS21/24 as part of the UK’s broader strategy to achieve a net‑zero economy by 2050, in line with the Chancellor’s remit letter. By focusing on firms’ fiduciary role in managing and administering assets, the rules aim to ensure that climate considerations are embedded in mainstream investment decision‑making, not treated as a separate ESG overlay.
For life insurers, this means that climate disclosures under PS21/24 will increasingly be read alongside prudential and accounting frameworks, even though PS21/24 itself does not amend Solvency II or IFRS 17. Entity‑level TCFD reports and product‑level climate metrics will inform supervisory dialogue, rating agency assessments and stakeholder expectations about how life balance sheets and savings products are positioned for the transition.
The next constraint for life insurers is not the existence of climate disclosure rules, but the availability of high‑quality data, credible climate VaR methodologies and coherent narratives that link investment strategy, risk management and net‑zero commitments across all regulatory and client‑facing documents.
--- Sources: https://www.bankofengland.co.uk/prudential-regulation/publication/2019/enhancing-banks-and-insurers-approaches-to-managing-the-financial-risks-from-climate-change-ss https://www.fca.org.uk/publications/policy-statements/ps-21-24-climate-related-disclosures-asset-managers-life-insurers-regulated-pensions https://www.sidley.com/en/insights/newsupdates/2022/01/new-uk-fca-rules-on-climaterelated-disclosures-ten-key-points-for-asset-managers
