The Financial Conduct Authority (FCA) has scaled back its plans to mandate climate change risk reporting for companies listed on the UK’s stock market, opting instead to allow firms to disclose such information voluntarily under existing “comply or explain” guidelines. The announcement on Wednesday marks a significant shift in regulatory approach, as concerns about the potential impact of strict rules on the competitiveness of UK businesses influenced the decision.

The original proposals would have required companies to provide detailed disclosures about the risks they face from global warming, aiming to increase transparency for investors. However, the FCA’s review found that 92% of FTSE 350 companies already report on climate risks under current standards, which follow a global reporting framework or require companies to explain any non-compliance.

Feedback to the FCA’s consultation highlighted apprehensions that compulsory reporting could impose undue burdens, especially on smaller firms. Jon Relleen of the FCA emphasized that the regulator’s revised position seeks to balance transparency for investors with maintaining the UK’s attractiveness as a place to raise capital and invest. Alicia Kedzierski, head of sustainable finance at the FCA, added that the approach provides issuers, particularly those in the earlier stages of development, with greater flexibility.

This development comes amid a broader global retreat from stringent climate disclosure rules. The US Securities and Exchange Commission, under the previous administration, rolled back several climate-related reporting requirements, and certain US states have enacted measures restricting public investment in environmental, social, and governance (ESG) funds. In the European Union, several climate reporting regulations were also eased last year.

Despite a summer marked by record high temperatures and widespread droughts in the UK, the FCA has opted to avoid imposing mandatory climate disclosures at this time. Luke Hildyard of ShareAction, an organisation advocating for responsible investment, criticized the decision, stating that most companies are exposed to significant climate-related risks and should be required to report on them.

The FCA’s revised stance reflects an ongoing debate over the balance between fostering sustainable business practices and supporting economic competitiveness as climate-related risks become an increasingly prominent consideration for investors worldwide.