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A sneak preview of what’s coming for UK Asset Managers in ESG and Sustainability

  • United Kingdom
  • Financial services and markets regulation - ESG
  • ESG
  • Financial services

08-10-2021

 

On Wednesday 6 October Mark Manning, FCA Technical Specialist (Sustainable Finance and Stewardship) delivered the FCA keynote at the SRI Services Good Money Week event.  As well as discussing how the FCA, as an organisation, is going to address ESG (noting the arrival of Sacha Sadan) there were a number of updates which will interest asset managers.  We have set out below a summary of noteworthy points taken from our notes of the speech.

TCFD (Task Force on Climate-Related Financial Disclosures)

The FCA will finalise its policy position on TCFD for asset managers, insurers and FCA-regulated pension providers by the end of the year (this being the output of CP21/17: Enhancing climate-related disclosures by asset managers, life insurers and FCA-regulated pension providers).

SDRs (Sustainability disclosure requirements)

HMT will shortly publish its roadmap for sustainability disclosure requirements (SDRs) trailed by Rishi Sunak at the Mansion House address.  Among other points, this will touch on how financial advisors can address suitability of products taking into account ESG. 

The HMT regime will be complemented by a labelling regime and the FCA expects to publish a discussion paper in the ‘next few weeks’.  This will include the FCA’s initial thinking on key design features for a product classification, labelling and disclosure regime.  The speech set out some initial high level thoughts ahead of the publication of the discussion paper:

The FCA believes that consumers will benefit from key definitions and criteria in the labels that group products into a small number of categories

These will be objective and descriptive labels capturing a spectrum of market options (for example, traditional products, products with progressive integration, those that pursue sustainability themes and characteristics, or those that aim/claim to have positive world impacts)

The FCA wants to capture allocation as well as intention

So as well as classifying products by reference to their sustainability characteristics, the regime will look at the proportion allocated to sustainable investments (e.g. by reference to the forthcoming UK taxonomy)

The FCA would also like to capture firm/entity-level attributes of the fund manager

For example: ESG governance; demonstrable commitments to ESG/sustainability investment; stewardship efforts

The FCA wants to support terminology familiar to investors and the industry

The FCA will have regard to the existing work of the trade associations when developing its policy

The FCA wants consumers to have decision-useful information in a standardised format

To allows comparison and evaluation of claims.  A second phase will cover consumer disclosures.  The FCA will undertake further research on this

Messaging

Once the new regime in place, the FCA wants firms to apply it carefully and ensure the clarity and consistency of their messages

ESG ecosystem

The FCA continues to be interested in the ESG ecosystem.  This includes ways the FCA can support industry enhancements (e.g. voluntary carbon markets).  However, in particular focus are the providers of ESG data services and benchmark indices; with the FCA noting the well-publicised low correlation between ratings.  Given the complexity of ESG issues, and the different choices and factors in the methodology (and how to weigh and how to measure them), the FCA wants to ensure that these services are provided in an effective, fair and transparent way.  The FCA is looking at this carefully and has fed into IOSCO’s related work.  The FCA captured feedback as part of the TCFD consultation and is considering this.

Innovation

Innovation in ESG will continue to be of interest, addressing verification, quality, availability, accessibility and potentially machine-readability (in future).  The FCA will run a tech sprint later this month exploring what might be possible from the perspective of effective regulation.  The FCA is also taking applications to join a second digital sandbox pilot focussed on ESG data and disclosure.

Refreshed ESG strategy

The FCA will publish a refreshed ESG strategy (refreshing the October 2019 feedback statement).  Trust and transparency will remain core themes but the FCA will also be considering how to support a market-led transition to a sustainable future (including a transition to net zero) and is undertaking extensive work to ensure the FCA has the internal resources and capabilities to support its dialogue with industry.

How Eversheds Sutherland can help

 

Our leading financial services practice works with key industry bodies in the ESG space to ensure we stay at the forefront of regulatory developments and understand the impacts such regulation is likely to have on the sector.

If you require assistance with scoping, planning and implementation of any ESG projects, please get in touch with a member of the team:

If you require assistance with scoping, planning and implementation of any ESG projects, please get in touch with a member of the team.