Firms regulated by the Financial Conduct Authority (FCA) are expected to take on a stewardship role in delivering sustainable economic growth, which will benefit UK consumers and businesses in all regions. Both the UK government’s Transition Plan Taskforce and the FCA have recently shared content on putting together a blueprint to ensure this happens. It is a given that if the UK is to become a more sustainable society and transition to a net zero greenhouse gas emissions economy by 2050, the financial industry must work alongside policymakers to actualise sustainable change in the medium to long term.
The FCA has also recently published a discussion paper to help the financial industry deliver on its potential to drive positive sustainable change. The discussion paper is part of the FCA’s commitment to deliver on its environmental, social and governance (ESG) strategy and it seeks to kick-off stakeholder engagement with the regulator’s ESG monitoring, remuneration, incentives and training/certification for regulated firms.
Stakeholders are to respond to the Q&A in the discussion paper by 10 May 2023, following which, the FCA will use the findings in determining the direction of its regulatory approach, including in relation to its supervisory engagement with firms on its ESG and stewardship strategy, as highlighted in the recent ‘Dear CEO’ letter on the regulator’s asset management supervision strategy. Some of the key considerations outlined in the discussion paper include: capability building, embedding sustainability related considerations across a regulated firm’s operations, the lack of clarity faced by oversight functions in relation to sustainable investment products, and adopting transition plans that demonstrate milestones and track short‑term actions to achieve long-term net zero aims. While these considerations are no doubt a good steer, there nevertheless remains the challenge of coherently transforming well-meaning commitments into concrete policies to achieve those aims and reflect firms’ awareness of the risks and opportunities presented by climate change and sustainability‑related matters (and their impact on profitability in the long term).
It is expected that the FCA’s sustainability standards would draw on various sources and industry initiatives, such as the UK’s Transition Plan Taskforce, the Glasgow Financial Alliance for Net Zero, the Taskforce on Climate‑related Financial Disclosures, the International Sustainability Standards Board, the International Organization of Securities Commissions, and relevant corporate governance codes, as well as any future international developments.
The UK’s financial industry should welcome the opportunity presented by the discussion paper and contribute to the dialogue to explore how best it can deliver on sustainability objectives and achieve a uniform outlook across the sector. It is important the industry does so because, although many firms are taking steps to implement ESG policies unilaterally, the impact of such actions is increasingly being scrutinised both by investors and society at large. Consequently, it is essential to have a common set of standards to serve as a benchmark against which to measure progress, build credibility and tackle potential liability risks, such as assertions of greenwashing or other sustainability related misconduct. Engaging the financial industry in dialogue prior to crafting industry-wide standards in the quest to achieve sustainable economic growth seems a good indication that the FCA is positioning itself to translate into action the government’s ambitions for the provision of sustainable finance and for the UK to become the world’s first net zero aligned financial centre. Overall, collective responsibility and involvement combined with proactive leadership, stewarding and accountability will be key to the financial industry achieving the climate and sustainability objectives set out by the government and the FCA.