RegulationFeb 10 2023

FCA considers widening regulatory measures for ESG and stewardship

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FCA considers widening regulatory measures for ESG and stewardship

The Financial Conduct Authority is considering introducing regulations that require financial services companies to include sustainability considerations in their business plans.

In a discussion paper published today (February 10), the FCA said it wants to encourage an “industry-wide dialogue” to encourage companies to think about how they can help the transition to net zero.

Sacha Sadan, director of ESG at the FCA, said the financial sector has a “vital role” to play in helping the economy adapt to a more sustainable future.

“But creating positive, sustainable change isn’t just about climate change. 

We welcome feedback on how firms’ governance, incentives and competencies align with their integration of sustainability-related considerationsFCA

“It’s about looking beyond and considering the wider environmental issues, such as biodiversity and nature, as well as social and governance issues, such as diversity and inclusion, the living wage, fair taxation and supply chains.”

Some 79 per cent of consumers think businesses have a wider social responsibility than just to make a short-term profit, according to the FCA’s financial lives survey.

However, 86 per cent of adults surveyed by Boring Money last year said they did not feel confidence investing in current sustainable funds. 

“Only with a trusted market and a flow of reliable information can we expect the financial services sector to support a transition to a more sustainable future,” Sadan said.

The discussion paper, which is targeted at banks, building societies, insurers, asset managers and investment firms, laid out a number of questions, including whether financial services firms should be expected to embed sustainability-related considerations in their business objectives and strategies, and what the most effective strategies to do this would look like.

It also requested feedback on the industry’s thoughts about how companies can improve how they incorporate sustainability into their business practices.

We expect firms to be accountable for their sustainability-related claims and commitmentsFCA

The FCA asked whether it should be introducing specific regulatory requirements or guidance on the governance and oversight of products that make sustainability claims or have sustainability characteristics, for instance to clarify the role of governing bodies such as fund boards.

Also noted was the skills gap in this area, and the regulator requested feedback on the best steps companies can take to ensure they have the right skills and knowledge about climate and sustainability risks. 

The paper also outlines that the regulator is considering the role of product governance bodies in overseeing the integration of these in investment processes.

The feedback will help the FCA decide whether to introduce different regulations for firms of different sizes, and if it should introduce training and certification for companies.