As an asset owner, an asset manager, a stewardship director, a regulator and now even a professor – I’ve seen the Environmental, Social and Governance challenges from all sides now. Looking back on recent years, significant progress has been made and I am proud that financial services has been front and centre in helping to drive positive, sustainable change. But there is lots more to do. We need to start closing the say-do gap and move from well-meaning commitments to real action.
The financial sector is immense, and it has a vital role to play in helping the economy adapt to a more sustainable long-term future. The journey to a net zero economy is one we’re all on together.
As a regulator, we are committed to playing our part in the government’s vision for the UK to be the world’s first net zero aligned financial centre. In the Chancellor’s latest remit letter to us, the Government called out the important role the FCA has and requested that we have regard to their ambitions for the provision of sustainable finance and their commitment to a net zero economy by 2050. But creating positive, sustainable change isn’t just about climate change. 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.
Our strategy for positive change
In our ESG strategy, published in November 2021, we explained that institutions large and small can use their business decisions, innovation and influence to encourage positive change. An institution’s sphere of influence can be incredibly powerful.
Their customers agree. Our Financial Lives 2022 Survey, the full results of which will be published later this year, show that in May 2022, 79% of consumers were of the view that businesses have a wider social responsibility than simply to make a short-term profit. But, according to research by Boring Money, 86% of adults surveyed do not feel confident investing in current funds.
"Our ESG strategy emphasises that transparency and trust are key enablers of the role of finance in driving positive change. Consumers need to be able to rely on firms to take ESG seriously, avoid ‘greenwashing’ and deliver on their ESG promises."
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.
Across the finance sector and real economy, firms’ consideration of sustainability-related risks, opportunities and impacts are also coming under closer scrutiny – especially with firms increasingly making public, voluntary commitments about their sustainability-related objectives.
So as financial services firms adapt to this changing world, their governance arrangements, incentives structures and capabilities must keep pace and remain consistent.
Starting a discussion
To deliver the transition to net zero, we will need a transformation of unprecedented pace and scale. Supporting firms is key. We know that many firms in the market are already doing this, we want to work with industry to ensure firms are able to do this well and able to do it consistently.
That’s why today we have published a paper to start a discussion on this area around evolving practices and areas it may be useful for firms to think about. This isn’t something we can consider alone – so we’ve included 10 commissioned articles from international thought leaders on different aspects of governance, remuneration, incentives, training and stewardship. These complement our own ideas and analysis.
At the core of our work, we want to see where the market is moving and highlight better practices to help and guide the industry. What gets measured and incentivised gets done.
We want to see active investor stewardship that supports a market-led transition to a more sustainable future. We are also inviting specific feedback on how FCA-regulated asset managers and asset owners govern and incentivise effective investor stewardship.
Seeing the bigger picture
We’re not doing this work in isolation. This year we’ve already delivered a considerable amount of work in line with the priorities set out in our ESG Strategy. This includes publishing proposals aimed at clamping down on greenwashing, the formation of a group to develop a voluntary Code of Conduct for ESG data and ratings providers, active monitoring of ESG-related business by firms and our review of climate disclosures by listed companies.
We are also working extensively with international stakeholders to ensure that we are joined up across the global stage. We are hugely supportive of establishing a global baseline of sustainability standards through the International Sustainability Standards Board (ISSB). We want one set of standards that show for example, how quickly firms pay their suppliers, the diversity of their employees, their health and safety records – one set of standards that make comparisons across firms easy.
Through this work, our aim is to support financial services firms and markets in reaching a more sustainable future.
Working together to achieve positive change
We would really like your feedback on our paper and the role we should play, including on the suitability of our current regulatory framework in adapting to achieve positive change.
There will also be opportunities to engage with us ahead of 10 May 2023 deadline.
Creating a more sustainable future is something most of us see as a necessity – governments, regulators, investors and consumers alike. I would like to extend my thanks to the authors for contributing to this important discussion and look forward to positive, sustainable change.