The Financial Conduct Authority (FCA), the conduct regulator for financial services firms and financial markets in the UK, announced today the launch of its new ESG Strategy, designed to set out the regulator’s role in supporting the financial sector to drive positive change and contribute to the net zero transition.
The FCA strategy is based on built on the key themes of promoting transparency on climate change and wider sustainability, building trust and integrity in ESG-labelled investment instruments and products, developing tools to enhance firms’ management of climate-related and wider sustainability risks, opportunities and impacts, supporting the role of finance in delivering a market-led transition to a more sustainable economy, and supporting the integration of ESG into FCA activities by developing strategies, organisational structures, resources and tools.
Some of the key actions highlighted by the regulator in order to pursue these themes include enhancing climate related financial disclosures, promoting global standards for sustainability reporting, encouraging effective investor stewardship, and embedding ESG and net zero considerations across all relevant FCA functions.
Along with the new ESG strategy, the FCA also announced the publication of a new discussion paper, seeking input on new sustainability disclosure requirements for asset managers, asset owners and a new classification and labelling system for sustainable investment products.
The discussion paper comes as major capital flows are being directed towards sustainable investments, resulting in a major proliferation in ESG-themed products and strategies. While this proliferation has provided investors with significant growth in their options for ESG investments, it has also raised challenges for regulators to address issues such as the need for consistent, comparable, and decision-useful information, and the rising risk of greenwashing, which threatens to erode trust in the asset management industry.
The FCA will accept comments on the new discussion paper until January 7, 2022, and aims to develop the new rules for consultation in Q2 2022.
Nikhil Rathi, Chief Executive of the FCA commented:
“It is vital that we innovate to support industry’s shift to a more sustainable future. That is why the FCA has been leading from the front. Developing consistent, trusted standards are a vital part of that, giving investors the confidence to put their money where it can deliver the most sustainable outcome.
“The strategy we have published today puts these standards front and centre, supported by supervision and enforcement where firms fail to meet them.”