Regulatory developments in sustainable investment (July 2021)

[Please see my more recent ‘Principles’ blog as the FCA Sustainable Investment Principles are now live.]

As you will know, the focus on ‘ESG’ (environmental, social and governance) has ramped up  dramatically recently right through the investment value chain.  News is now emerging almost daily from all quarters – from the public facing NGOs (notably Make My Money Matter)  through to the United Nations – via UK government departments and our regulators.

I do not claim to be able to keep tabs on everything (or to have fully digested every detail of every link below) .  I do however aim to and am happy to share the list of developments I’ve been keeping tabs on recently.  These will undoubtedly play a major part in helping to reshape the landscape in which we operate (although it is early days as most of the following has emerged within the last few weeks btw…):

International:

• The official launch of the UNFCC ‘Race to Zero’ campaign – which is already widely supported and links through to the COP26 agenda.
• International standards work at IOSCO (which the FCA works with) is progressing including:
  • IOSCO consultation on sustainability-related regulatory and supervisory expectations in asset management.  30 Jun 2021 – View Release
  • IOSCO elaborated on its vision and expectations for the IFRS Foundation’s work towards a global baseline of investor-focussed sustainability standards to improve the global consistency, comparability and reliability of sustainability reporting. 28 Jun 2021 – View Release
•  The FSB published its `Financial stability roadmap  – dealing with climate as a major, international financial risk. 7 July 2021

UK:

• On 17 June the government announced a new UK Infrastructure Bank – in part to to help combat climate change
• On 30 June the government announced a new Green Finance strategy, heralding the arrival of Green Gilts (potentially  September).
• On 1 July Chancellor Rishi Sunak’s Mansion House Speech heralded the arrival of ‘A new chapter for Financial Services‘.  This  included a section on Green Finance with the header: “We will press for global action and build international standards, including  through COP26, using our leading commercial and policy expertise to reaffirm the UK as the best place in the world for green and sustainable investment“. Other key phrases include: ‘We’re launching new requirements for businesses and financial products to disclose sustainability information’.  Full details are here.      There is a link to the 2021 Mansion House speech linked here.

FCA:

• On 22 June the FCA issued two new consultation papers  (‘Enhancing climate-related disclosures by asset managers, life insurers and FCA-regulated pension providers’ here, and ‘Enhancing climate-related disclosures by standard listed companies’
  here) proposing new climate-related disclosure rules for ‘regulated firms’ and ‘standard listed companies’ .  These indicate that  that improved information may soon be available to investors and others.  (These build out the proposals of the regulatory grid published in May 2021)
• On 8 July FCA published new consumer research into understand greenwashing and consumer choice . (The research appears to indicate that clients have a degree of resilience to many forms of greenwashing but that ‘medals’ or badging funds do seem to gain traction.)

Other FCA developments that we are aware of:

The FCA has been working on new principles for sustainable investment funds, to help improve trust in this area. These were first announced at our conference last year and are expected to be published shortly.

Other areas we know the FCA is considering is labelling of sustainable investment funds and templates for sustainable investment funds. We understand these to be at an earlier stage and do not know timescales.

 TEXT ADDED 17 July 2021

Today’s FCA business plan makes multiple references to TCFD (p34) and ESG (p43). 

The ESG section notes that the FCA wants to achieve the following outcomes:

• high-quality climate – and sustainability-related disclosures to support accurate market pricing, helping consumers choose sustainable investments and drive fair value
• promote trust and protect consumers from mis-leading marketing and disclosure around ESG-related products • regulated firms have governance arrangements for more complete and careful consideration of material ESG risks and opportunities
• active investor stewardship that positively influences companies’ sustainability strategies, supporting a market-led transition to a more sustainable future
• promote integrity in the market for ESG-labelled securities, supported by the growth of effective service providers – including providers of ESG data, ratings, assurance and verification service
• innovation in sustainable finance, making use of technology to bring about change and overcome industry-wide challenges

Other UK initiatives:

The BSI (British Standards Institute) is working on fund PAS 7342 .  This is the first step in the process of designing a sustainable investment fund standard for the UK – and then hopefully internationally (ISO). (Backed by BEIS and industry).

• I am delighted to have been appointed to the steering group of this important development .

 Pensions:

• 2 July 2021 DWP Pension Consultation update with foreword by by Pensions Minister Guy Opperman – on the subject of ‘taking action on climate risk… occupational pension scheme reporting requirements.’ ‘Governance and reporting of climate change risk: guidance for trustees of occupational schemes‘.
• On 5 July The Pensions Regulator (TPR) issued draft guidance  on the governance and reporting of climate-related risks and opportunities, outlining TPR’s approach to new regulations.

UKSIF 

FYI much of the work above has involved not for profit UKSIF – the UK Sustainable Investment and Finance association – to some extent. I remain proud to be a director of UKSIF and to recommend them to interested parties.

A particular highlight for UKSIF recently was their appointment to the newly formed Green Taxonomy Technical Advisory Group (GTAG) on 6 June. The press release is available here.

• https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/998127/20210630_UK_Government_Green_Financing_Framework_Final.pdf
• https://www.gov.uk/government/publications/uk-government-green-financing
• https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/998127/20210630_UK_Government_Green_Financing_Framework_Final.pdf
• https://www.gov.uk/government/speeches/mansion-house-speech-2021-rishi-sunak
• https://www.gov.uk/government/publications/a-new-chapter-for-financial-services mansion house speech 1 July
• https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/998102/CCS0521556086-001_Mansion_House_Strategy_Document_FINAL.pdf
• https://www.gov.uk/government/publications/a-new-chapter-for-financial-services
• https://www.gov.uk/government/publications/uk-infrastructure-bank
• https://unfccc.int/climate-action/race-to-zero-campaign
• https://www.gov.uk/government/consultations/taking-action-on-climate-risk-improving-governance-and-reporting-by-occupational-pension-schemes-response-and-consultation-on-regulations/taking-action-on-climate-risk-improving-governance-and-reporting-by-occupational-pension-schemes
• https://www.thepensionsregulator.gov.uk/en/document-library/consultations/climate-change-guidance/guidance