The UK Financial Conduct Authority published its response to the recommendations made by the Environment Audit Committee in its June 2018 report, Greening Finance: embedding sustainability in financial decision making.
The FCA’s letter to Mary Creagh MP, Chair, Environmental Audit Committee, included the following comments:
We plan to publish a document setting out the FCA’s approach later this year. In line with our statutory objectives to ensure financial markets work well and consumers are appropriately protected, our approach to climate change and green finance will focus on:
1. Influencing activities that directly impact on the performance and integrity of financial services markets.
2. Promoting trust and confidence, helping consumers access green finance products they would like to invest in, and ensure that relevant advice and investment management meets appropriate standards.
3. Setting, supervising and enforcing clear standards to promote trust and confidence, where it is merited and appropriate.
Understanding how ESG related matters, including climate change risk, are managed by listed companies is relevant to an investor’s understanding of the prospects of a particular company. It is, therefore relevant, to a fully informed understanding of the valuation of securities they are investing in. We are increasingly aware of a challenge that institutional investors are facing in discharging their fiduciary duties given the increasing demand by beneficiaries for investments to be sustainable.
We, therefore agree, that there is a need to work with other stakeholders and other public bodies on this issue.
We also agree there is a need to consider further whether the framework can and should be strengthened, and if so how, while taking account of the international nature of capital markets. Finally, the existing framework is far from inconsequential, and within that existing framework there are a number of proactive steps the FCA is already taking or will take in the future in relation to climate change-related disclosures, which we believe align with your recommendations:
· We have been contributing to regulatory initiatives to ensure better disclosures where required, and we would highlight in this context the Commission’s initiatives in Green Bonds and more sophisticated credit ratings.
· We are continuing to work with the Financial Reporting Council to support better disclosures in annual reports.
· In light of your recommendations, we will highlight to issuers the need to make adequate disclosures regarding materially important information, including information that allows investors to understand how ESG matters affect the valuation of a listed company’s securities and how these matters are managed by the company. We will do this through our regulatory publications and we will work with companies and investors to monitor progress in this area.
Source: FCA
