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Policy and rEGULATION

On 30 March, HM Treasury (HMT) published a consultation on regulating  ESG ratings. Recognising that growing reliance on unregulated ESG ratings can raise risks that can impact the performance of investments and the credibility of the sustainable investment market, HMT  considers there is clear benefit to be gained from improving the transparency of methodologies, governance, and processes of ESG ratings providers. HMT proposes that the direct provision of an assessment of ESG factors to a user in the UK, where the assessment is used in relation to a specified investment in the Regulated Activities Order (2001), unless an exclusion applies, be brought into regulation. 

The consultation seeks views on initial policy proposals and does not include settled positions or proposed legal drafting, which will be worked up using input from this consultation, if HMT decides to pursue regulation for ESG ratings providers. The consultation is open until 30 June. PIMFA’s Sustainable Finance Working Group will meet to discuss the proposals and provide a response. If you wish to get involved and join the Working Group, please contact Maja Erceg.

On 10 February the Financial Conduct Authority (FCA) published the discussion Paper: “Finance for positive sustainable change: governance, incentives and competence in regulated firms (DP 23/1)“, which aims to encourage an industry-wide dialogue on firms’ sustainability-related governance, incentives, and competence. The FCA is looking to help narrow this fast-evolving field where there are many initiatives and help highlight good practices if finance is to deliver on its potential to drive positive sustainable change. 

The first part of the discussion paper examines how governance, incentives and competence are considered in the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations, and how expectations in these areas are evolving with the work of the International Sustainability Standards Board (ISSB), the Transition Plan Taskforce (TPT) and the Glasgow Financial Alliance for Net Zero (GFANZ). The second part includes the commissioned articles which may help firms to reflect on how their approaches to governance, incentives and competence support positive change. 

Published in November 2021 the FCA’s ESG strategy sets out their ESG targets and the actions they expect to take to deliver these. The aim is to support the financial sector in driving positive change, including the transition to net zero.

The Task Force on Climate-Related Financial Disclosures (TCFD) was created in 2015 by the Financial Stability Board.

Sustainability Disclosure Requirements (SDR) bring together new and existing sustainability reporting requirements for business, the financial sector and investment products.

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