The FCA has published a refreshed ESG strategy setting out how it plans to deliver on the target ESG-related outcomes included in its Business Plan 2021/22. A summary of its key workstreams has also been published setting out the themes and Business Plan outcomes to which they relate, and the key milestones to the end of 2022. The FCA strategy focuses on near-term priorities and milestones, organised under its five core themes of: transparency, trust, tools, transition and team.
The FCA will provide further detail and granularity in certain areas as its thinking evolves. It will also provide interim updates on its work as part of its Business Plan in 2022 and will produce a more detailed stock-take on progress in early 2023. The FCA also states that it is not an exhaustive summary of its ESG work programme and that there will be “more to come” as it builds on its programme of work.
The Financial Services Regulatory Initiatives Forum has also issued the fourth edition of the Regulatory Initiatives Grid. Amongst the initiatives included in the Grid are the new climate related additions around introducing Sustainable Finance Disclosure Regime, Net Zero Transition Plans and work on ESG issues in capital markets.
Overview of workstreams and milestones
Below is an overview (in chronological order) of the initiatives set out in both the Regulatory Grid and the FCA’s ESG strategy:
Upcoming milestones and actions
3 November 2021
Supporting the Government’s ambition to make the UK a world leader in green finance
FCA published a discussion paper on sustainability disclosure requirements (SDR) and investment product labels ahead of its consultation in Spring 2022.
The FCA needs to ensure that consumer-facing communications under the regime are accessible and decision useful. The design of these will be informed by a second phase of consumer behavioural experiments to be carried out in late 2021/early 2022.
30 November 2021
Stewardship Code 2020
The Financial Reporting Council advice page states that it will release a review of reporting with more detail about its expectations, examples of effective reporting, and expected improvements for 2022.
Signatories to the UK Stewardship Code must submit to the FRC a Stewardship Report explaining how they have applied the Code’s Principles in the previous 12 months.
Roll out appropriate oversight, supervision and enforcement mechanisms to improve the quality of disclosures
FCA will release more information (for listed companies and their advisers) on its approach to monitoring compliance with the new premium and proposed standard listing rules via a Primary Market Bulletin article.
Over time, the FCA also plan to apply data analytics and machine learning techniques to detect where listed companies may not be complying with its rules.
The FCA is also considering how it can leverage the NSM to support the emergence of data service providers to improve the flow of information along the investment chain.
Q4 2021/Q1 2022
Help firms navigate competition law issues when pursuing ESG objectives
FCA will begin stakeholder engagement to see whether, and how it can, either provide clarification or take other regulatory actions to address potential tension between cooperation and competition law.
By the end of 2021
Enhance climate-related financial disclosures
FCA to publish a policy statement on rules to extend the application of its TCFD-aligned Listing Rule for premium-listed commercial companies to issuers of standard listed equity shares and introduce TCFD-aligned disclosure requirements for asset managers, life insurers, and FCA-regulated pension providers. The rules will be phased in from January 2022.
As part of the IFPR, the FCA will be consulting on the introduction of ESG disclosure for MiFID investment firms in 2022.
By the end of 2021
Corporate Bond Purchase Schemes
According to a recent speech, the Bank of England will launch a new approach to investments by the Corporate Bond Purchase Scheme (CBPS) following its discussion paper in May.
The BoE will use its role as an investor for monetary policy purposes to incentivise firms to take meaningful actions in support of climate transition.
Ongoing through 2022/23
Promote global consistency and comparability in corporate reporting on sustainability matters
FCA to promote IOSCO/IFRS initiatives by, among other things, developing UK implementation plans for forthcoming global standards.
Ongoing through 2022
Challenge fund managers for the design, delivery and disclosure of ESG/sustainable investment products
FCA to follow-up and challenge authorised fund managers’ response to its ‘Dear CEO’ letter sent in July 2021 and the guiding principles in its authorisations processes and embed them in its supervisory engagement.
Ongoing through 2022
Encourage effective investor stewardship
FCA, with the Stewardship Regulators Group, will monitor engagement between investors and issuers, and the exercise of investor stewardship, including voting at AGMs.
The FCA notes that if there is insufficient evidence of active stewardship to advance environmental and social goals it will consider further regulatory action.
Ongoing through 2022
FCA to target a ‘golden thread’ approach to embed net zero and wider ESG considerations in all its functions and work
Actions will include, for example, setting ESG-related expectations at the Authorisations gateway; incorporating ESG-related questions and criteria in supervisory assessments and engagements; and building ESG-related elements into enforcement models.
Bank of England/PRA 2021 Biennial Exploratory Scenario
BoE/PRA will decide whether to launch a second round of the Biennial Exploratory Scenario to further explore interactions between banks and insurers. In the event of a second round, the results will be published in May 2022.
Deliver an extensive and ambitious Innovation work programme to develop innovative solutions to support the market, consumers and regulators
FCA to launch the Digital Sandbox and Green Fintech Challenge.
The FCA will support 12 successful applicants in its Digital Sandbox. The FCA is also pursuing internal work to scope how data science and analytics can help embed ESG considerations across FCA functions.
Enhance transparency of listed companies’ and regulated firms’ D&I performance
A joint FCA/PRA/BoE consultation paper on diversity in financial services will be published followed by a policy statement in H2 2022.
The FCA will take note of the assessments that the FRC undertakes of companies’ reporting against the Corporate Governance Code and work with the FRC to advance corporate governance and ESG objectives.
Develop a policy approach to ESG governance, remuneration, incentives and training/certification in regulated firms
FCA will begin stakeholder engagement with a view to promoting well-designed, well-governed, credible and effective transition plans that consider the Government’s net zero commitments.
Firms may need to consider general staff training on climate change and net zero, and ESG more broadly.
Delivering a UK Taxonomy for sustainable activities
FCA to publish a consultation paper on disclosure rules and labelling. (A discussion paper was released ahead of the consultation on 3 November.)
Encourage an effective ESG ecosystem – including by supporting the integrity and effectiveness of ESG data, ratings, assurance and verification services
FCA feedback statement on ESG issues in capital markets.
The FCA is currently analysing the responses to its June consultation (CP21/18) on enhancing climate-related disclosures by standard listed companies which looked at whether there is a case for regulatory intervention.
6 April 2022
Mandatory climate-related financial disclosures by publicly quoted companies, large private companies and LLPs
Since the publication of the Regulatory Grid, the Government has announced that the new rules which require many UK-registered companies and financial institutions to disclose climate-related financial disclosures in line with the TCFD recommendations will be required by this date.
FCA to scope a programme of work to ensure that its regulatory regime adequately supports positive ESG outcomes
FCA to publish a consultation paper on prudential ESG disclosures, with wider stakeholder engagement throughout 2022.
Summer 2022 (and annually thereafter)
To communicate and role model
FCA will publish its own TCFD-aligned disclosure report. This will align the FCA with what the BoE has done since 2020.
End of 2022
UK green taxonomy
BoE/FCA/HMT to finalise Technical Screening Criteria.
As set out in on-shored regulation, the UK will develop Technical Screening Criteria to define what economic activities are environmentally sustainable.