The FCA's TCFD simplification shifts the burden, not the responsibility

The FCA has signalled a significant departure from prescriptive product-level TCFD reporting as part of its broader simplification agenda. Under the proposed new approach, firms would instead be expected to disclose climate-related risks and opportunities that are materially relevant to their products and strategies, rather than following a uniform set of mandatory disclosures. Reports are that market participants have broadly welcomed the reduced burden but are calling for far greater FCA guidance on what a robust materiality-based assessment looks like in practice as it's a significant departure from the relatively prescriptive rules that preceded it.

The shift is consistent with the FCA's wider deregulatory direction of travel and mirrors approaches already embedded in the PRA's climate-related risk framework, including SS5/25, as well as the broader movement in European sustainability reporting towards materiality as the core organising principle. The practical challenge for firms is that materiality assessments currently vary enormously in rigour, and without a minimum viable standard articulated by either UK regulator, that disparity is likely to persist.

Perigon Take

Moving to a materiality-based framework for climate disclosure is the right direction and it is consistent with how sophisticated regulators and standard-setters are increasingly thinking about sustainability risk. The problem is that "materiality" means very different things to different organisations. We have seen assessments ranging from cursory, non-evidence-based judgements to detailed, audit-ready bottom-up analyses of hundreds of indicators. Neither the FCA's proposals nor the PRA's SS5/25 sets out a minimum viable approach or defines what good looks like, which means the judgements — both on process and on what actually tips into being material — rest firmly with individual boards and leadership teams. That creates real variability in outputs.

What this change does do is remove the incentive to list every conceivable climate risk regardless of relevance, which was a genuine weakness of many existing product-level TCFD reports. In time, as more regulations converge on materiality as the organising principle, there is a reasonable prospect of some market standardisation emerging.

In the meantime, our strong recommendation to firms is to treat materiality as a strategy exercise, not a compliance one. Done well, a materiality assessment can be a powerful tool: it streamlines a firm's climate risk approach, connects disparate policies and processes, and embeds climate into core governance and decision-making taxonomies. Firms that approach it this way will not only be well positioned for wherever the FCA lands, they will be building genuine long-term resilience — which is the point. The process that Perigon built to support its clients in responding to SS5/25 gives a robust yet proportionate foundation for assessing climate-specific risks. And our broader double materiality process, that considers the full spectrum of social and environmental impacts and dependencies and is based on the revised European CSRD requirements, offers the most strategic approach to assessing the materiality of sustainability topics as a whole.

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