'Time is something we don't have': FCA urged to act on ESG disclosure

'Time is something we don't have': FCA urged to act on ESG disclosure

The Financial Conduct Authority has been urged to act on sustainability disclosure, with industry experts saying the issue risked being "perpetually kicked down the road".

Earlier this week the regulator announced a delay in the release of SDR, the first draft of which was due to be released in the second quarter of the year.

The FCA said it had postponed this until the autumn to allow it to take into account other international policy initiatives. 

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EU-wide rules on sustainbility disclosure - SFDR - were due to come into effect in the UK in March 2021 but were not implemented due to Brexit.

The UK government chose not to implement the EU rules and decided to draw up its own instead.

James Alexander, chief executive of the UK Sustainable Investment and Finance Association, said the FCA was treading a careful line.

“[We want the industry to] keep the pressure on [the FCA] for the regulations to come out soon…[by all means] make sure they are as good as they can be, but don’t delay this indefinitely.”

Becky O'Connor, head of pensions and savings at Interactive Investor, agreed, saying the investment industry and investors need the transparency and “peace of mind” that official disclosures and labels will give them sooner rather than later.

“It’s vital this consultation doesn’t perpetually get kicked further down the road,” she said.

Louisiana Salge, senior sustainability specialist at EQ Investors, said she could understand the delay given the lack of an International Sustainability Standards Boards framework.

“The aim of the labels and SDR was to cross-reference all the way from corporate disclosure to the labels and attached product/entity level disclosures,” she said. 

“It is the classic chicken-and-egg situation, it appears that the FCA would rather release labels with some reference to published data frameworks for the mandatory reporting it includes.”

Last month the Securities and Exchange Commission proposed a new set of rules on climate-related disclosures, to be phased in from 2023. 

If adopted, these will require funds and advisers to provide more specific ESG disclosures in fund prospectuses, annual reports, and adviser brochures.

The EU is currently the only implementer of sustainable labels on investment funds, introducing SFDR last year. 

Alexander highlighted how the FCA will never get the regulation completely correct the first time, but it needs to release something soon nonetheless.

“The sequencing is not necessarily perfect, but it you waited for [that] it would take you 10 years.

“[That time] is something that we do not have.”

He said the FCA was also in a balancing act of waiting for other jurisdictions to be aligned and enacting change that could have a positive impact on the environment.

“The whole process for us is about finding that balance and moving faster.”

All the experts agreed that this delay would not have a tangible impact on the industry, as long as it wasn’t delayed further.