ESG Investing  

Advisers could be forced to ask about sustainability

Julia Dreblow

Julia Dreblow

I am writing this piece from the relative comfort of an Avanti train, heading home from Glasgow having recharged my batteries somewhat by listening to some great presentations at COP26.  

Although I could have seen more of the major announcements had I watched it online, the experience of ‘being there’ was quite something. 

I particularly enjoyed getting the sense that there are so many of us working on different aspects of the sustainability puzzle.  

An event organised by Make My Money Matter – a campaign group set up by film director Richard Curtis – co-hosted by Aviva, Triodos Bank and the WWF reminded me of the low awareness most people have about financial matters. 

And a Lombard Odier event illustrated how far advanced some institutions are. Their session on scaling nature-based solutions – made all the more interesting by Prince Charles popping in as part of his Terra Carta initiative – was a million miles away from the literature intermediaries generally receive.  

Put together, however, they highlight the challenges the Financial Conduct Authority faces regulating sustainable investment.  

The FCA (alongside the Prudential Regulation Authority, the Department for Work and Pensions and others) is now tasked with helping to address climate change.  

The government’s announcement at COP26 that they intend the UK to be "the world’s first net zero financial centre" will undoubtedly add pressure – and hopefully accelerate momentum. 

So, how relevant is this to advisers? In brief, very. 

Although the EU’s Sustainable Finance Disclosure Regulation did not come into force here, the UK’s direction of travel is starting to emerge. The Treasury policy paper Greening Finance: A Roadmap to Sustainable Investing, published on October 18, mentions advisers briefly, saying: "Subject to consultation, potential requirements including on how sustainability matters are taken into account in investment advice."

This week’s FCA consultation DP21/4: Sustainability Disclosure Requirements and Investment Labels goes further.

Section 1.11 states: “This paper focuses on the elements of SDR relevant to firms involved in investment management and decision-making processes.

"However, we recognise the important role that financial advisers play in providing consumers with sufficient information to assess which products meet their needs. We are also exploring how best to introduce specific sustainability-related requirements for these firms and individuals.

"Building on existing rules, a key aim will be to confirm that they should take sustainability matters into account in their investment advice and understand investors’ preferences on sustainability to ensure their advice is suitable. We will develop proposals on this in due course, working with government.” 

As a member of the newly announced Disclosure and Labels Advisory Group (DLAG) set up to help steer this, it would be wrong for me to speculate too much. 

However, the word ‘confirm’ is quite strong. In addition, FCA research indicates significant client interest in sustainability, and the science points to major risks. So, coupling the FCA’s obligations with existing rules around know your customer, Prod and risk, we can expect advice processes to be under the spotlight.