Spring Green Consultation Paper

Page 1 of 5

Closes 5 May 2021

Part 1 - Board Consideration of Climate-related Risk

In 2011, the Commission published its Finance Sector Code of Corporate Governance (the ‘Code’); with subsequent amendments.This Consultation Paper proposes that the Code take specific account of climate change considerations.

Even if limited by current mitigation efforts, climate change will materially alter the world we live in over the coming years. For that reason, licensees need to consider their business strategy and risks in relation to climate change. As a financial services regulator, the Commission is obliged to ensure that licensees consider key risks especially when they extend beyond the immediate time horizon. International regulatory understanding of climate change risk is evolving fast. Licensees should maturely consider this risk, adapt to it in an orderly fashion and continue to keep abreast of standards and market expectations as they develop, not least with regard to disclosure. 

The Commission is not planning to set out specific rules or guidance at this time. There is already much in the public domain to help firms in this respect. Emerging requirements and guidance set out by international bodies such as the Task Force on Climate-related Financial Disclosures and the proposed partner body to the International Accounting Standards Board may be relevant for many firms. What works for one sector or licensee, may not work for another. What licensees cannot do is to ignore climate change; even if, in the event, a licensee concludes that any adjustment to its business strategy and risk profile should be limited. 

Directors have a general duty to promote the success of the company and act with due care. The board sets company strategy and risk appetite. Board-level commitment is vital in order to gain assurance that work on climate-related strategy and risks has sufficient standing in the organisation. Amending the Code encourages appropriate consideration of climate change risks; whilst allowing firms to prepare for probable new international standards on climate change disclosure in a balanced fashion.  

The Commission is aware that other jurisdictions are already starting to mandate climate change actions and prescriptive climate change non-financial reporting. The Commission is pleased to see the evolution in the currently less than mature reporting standards but considers it premature to mandate what disclosures are necessary until more general international agreement on what standards should apply to what types of financial services firm is reached. That said, it encourages firms to consider and act upon as appropriate international developments in this fast moving area.

The Code is concise. Accordingly, the Commission proposes to add the following requirement:


The Board should consider the impact of climate change on the firm’s business strategy and risk profile and, where appropriate in the judgement of the board, make timely climate change related disclosures. 

This clause becomes 5.2 (1) in the Risk section of the Code. For insurers, it becomes Principle: 18. The placement of the clause is such that it will not require boards to renumber extant clauses.

We would propose that the obligation on boards to comply with the new clause should apply for financial years starting from 1st October 2021.  


1. Do you have any comments on the proposed amendment to the Corporate Governance Code?

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