UK FCA ESG publications on debt capital markets: Feedback Statement and Primary Market Bulletin

The FCA has published its Feedback Statement (FS) on ESG integration in UK capital markets following the discussion chapter in its consultation paper of June last year (Feedback to CP21/18 (FS22/4) (29 June 2022)).

The FCA sought initial views from stakeholders on the following topics:

• Issues related to green, social, sustainability and sustainability‑linked debt instruments (ESG‑labelled debt instruments), including:
  • prospectus and ‘use of proceeds’ (UoP) bond frameworks
  • the role of verifiers and second party opinion (SPO) providers
• ESG data and rating providers

The FS summarises market feedback received and the FCA’s response, as well as outlining potential future actions.

The FCA has set out further detail of its approach in Primary Market Bulletin 41 (PMB) which has been published alongside the Feedback Statement.

In the PMB, the FCA:

• encourages issuers of ESG-labelled UoP debt instruments to consider voluntarily applying or adopting relevant industry standards, such as the Principles and Guidelines that the International Capital Market Association (ICMA) has developed for green, social, and sustainability bonds;
• reminds issuers, their advisors and other relevant market participants of their existing obligation to ensure any advertisement is not inaccurate or misleading, and is consistent with the information contained in the prospectus; and
• encourages issuers and their advisors to consider verifiers’ and assurance providers’ expertise and professional standards, and to engage with SPO providers and verifiers who adhere to appropriate standards of professional conduct, such as ICMA’s Guidelines for External Reviewers.

The FCA notes that they are taking a measured approach to ESG-labelled debt instruments, with the aim of setting clear guard-rails as the market continues to develop.

The PMB elaborates further on disclosures in bond frameworks, prospectuses and the advertisements regime, noting that where bond frameworks form part of a communication that relates to an offer or admission of securities, they are likely to be advertisements for the purposes of the UK prospectus regime. Reference is made to the existing requirements applicable to advertisements under the UK prospectus regime and the FCA’s Technical Note 604.2.

In relation to ESG data and rating providers, noting a clear rationale for regulatory oversight and global consistency, the FCA will continue to work with the Treasury, who are considering bringing ESG data and rating providers within the FCA’s regulatory perimeter.

The FS also provides an indication of future direction, stating that:

• In relation to bond frameworks, prospectuses and bond standards, as part of the Treasury’s wider Prospectus Regulation Review, the FCA may assess in the future, the case to develop an appropriate standard for UoP bonds but it is not currently proposing to develop a UK version of the EU Green Bond Standard.
• The FCA may consider further the case for regulatory oversight of verifiers and SPO providers in the future.
• Regarding climate-related disclosures for listed issuers of debt, the FCA will consider the best way to strengthen and promote transparency on sustainability representations by debt issuers, including in the context of the Prospectus Regime Review.
• If the Treasury extend the regulatory perimeter, the FCA will take the necessary steps to develop and consult on a proportionate and effective regulatory regime for ESG data and rating providers.