ESG Investing  

Treasury and FCA exploring sustainability rules for advisers

Treasury and FCA exploring sustainability rules for advisers
 Chancellor Rishi Sunak

The Treasury and Financial Conduct Authority are exploring sustainability-related rules for financial advice, according to a government paper. 

Ahead of the COP26 conference in Glasgow next month, Rishi Sunak yesterday (October 18) published a roadmap for the UK’s Sustainability Disclosure Requirements (SDR) to help investors understand whether the firms’ practices align with their own sustainability preferences.

The roadmap included financial advisers, who could become subject to new rules forcing them to take sustainability matters into account when giving investment advice.

The rules for advisers will be consulted on separately to the wider framework, with the government promising to take costs on the industry into account. 

The paper stated: "HM Treasury and the FCA are exploring how best to introduce sustainability-related requirements for financial advisors.

"A key aim will be to ensure that they take sustainability matters into account in their investment advice and understand investors’ sustainability preferences to ensure suitability of advice.

"Details of the proposals are subject to further consideration and will be set out on a different timescale to proposals for financial market participants. The proposals will be subject to consultation and cost benefit analysis."

Meanwhile asset managers, fund managers and pension schemes will need to set out their green credentials to potential investors under the government's planned regulations. 

The rules will mean the environmental impact of every investment product will need to be set out, and any sustainability claims made will need to be justified.

Asset managers will need to set out how they incorporate sustainability into their investment strategy.

Certain firms will also need to publish plans on how they will adhere to the UK’s commitment to achieve net zero carbon emissions by 2050.

Sunak said: “We are already a world leader in green finance, and today’s roadmap will give us the opportunity to set new global standards for sustainability that will boost the economy, protect the planet and support our net zero goals.

“We want sustainability to be a key component of investment decisions, and our plans will arm investors with the right information to make more environmentally-led decisions.”

The roadmap also contained more detail on the UK Green Taxonomy, which will outline which economic activities are classed as green. Certain companies and products will be required to report their environmental impact against this taxonomy.

The scope, timing and detail of these reporting requirements will be developed following a public consultation in 2022.

Chris Cummings, chief executive of the Investment Association welcomed the report, saying it set out a clear timescale for introducing economy-wide sustainability-related disclosures. 

“In particular, we are encouraged to see the emphasis on addressing the data gaps and the flow of sustainability information from investee companies through to investment managers and to consumers.

"This supports the responsible allocation of capital and ensures that savers have clarity, confidence, and choice when investing,” he said.