FCA updates ESG strategy and adviser rules on the way

Closeup of female hands typing text on laptop keyboard. Woman working or studying at home office with cup of coffee. Freelancer working place.
For financial advisers only

The Financial Conduct Authority (FCA) has published its ESG strategy setting out its target outcomes and action plan as the United Nations Climate Change Conference (COP 26) continues. Read this article by Julia Bahr from Professional Advisor to find out more.

The regulator said supporting the financial sector in driving positive change1 was an important goal. This included the transition to net zero as the sector had an important role to play in helping the economy adapt to a more sustainable long-term future, it added. 

Alongside its updated ESG strategy, the watchdog published a discussion paper on sustainability disclosure requirements2, which included information on rules for financial advisers that it would formalise in"due course". The paper explored how to introduce rules for financial advisers given the role they play in the investment chain.

"Building on existing rules, we consider it would be appropriate to confirm that advisers should consider sustainability matters in their investment advice and ensure their advice is suitable and reflects consumer sustainability-related needs and preferences."

"We acknowledge that the EU has taken this approach in introducing suitability requirements for different types of financial market participants. However, these were not onshored in the UK prior to the UK's withdrawal from the EU. We welcome any views on this approach and any particular considerations that we would need to take account of in our proposals," the FCA added.

Consumer demand and awareness

ESG matters are high on the agenda as there is a risk of harm if the financial sector responds to rising consumer demand and awareness of ESG issues without a supportive regulatory foundation and adequate guard rails, the FCA warned in its ESG strategy document.

"For instance, consumers, industry participants, civil society, regulators and the media are all increasingly questioning the integrity of some of the ‘green' claims made by companies and financial firms," the regulator said.

It highlighted that consumers need to be able to rely on firms to take ESG seriously, avoid ‘greenwashing' and deliver on their ESG promises. With a focus on moving its work on ESG to a new phase, the FCA said Sacha Sadan had joined as its first director of ESG earlier this year with a mandate to embed ESG considerations across its functions.  

The refreshed strategy sets out a plan to deliver on the target ESG-related outcomes included in its Business Plan 2021/22 and will continue to develop in response to the changing landscape, according to the FCA.

The FCA's work is based on five core themes:  

  • Transparency: promoting transparency on climate change and wider sustainability along the value chain.
  • Trust: building trust and integrity in ESG-labelled instruments, products and the supporting ecosystem.
  • Tools: working with others to enhance industry capabilities and support firms' management of climate-related and wider sustainability risks, opportunities and impacts. 
  • Transition: supporting the role of finance in delivering a market-led transition to a more sustainable economy. 
  • Team: developing strategies, organisational structures, resources and tools to support the integration of ESG into FCA activities.

"As we deliver our strategy across these themes, we are collaborating with the government, other UK regulators, industry and other stakeholders to ensure UK financial services and the UK regulatory regime are at the forefront of ESG internationally," they said.

 

This article was written by Julia Bahr from Professional Adviser and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to legal@industrydive.com.

 

References

[1] A strategy for positive change: our ESG priorities, FCA, Source, November 2021.

[2] Sustainability Disclosure Requirements (SDR) and investment labels, FCA, November 2021.