The financial sector needs to close the “say-do” gap around ESG and move from well-meaning commitments to real action, says Sacha Sadan, director of environmental, social and governance at the Financial Conduct Authority.
The FCA has published a discussion paper to encourage an industry-wide dialogue on firms’ sustainability-related governance, incentives and competence.
It described sustainable change as a “fast moving and evolving field” which it hopes to narrow down and highlight good, evolving practices while considering whether there is a case for further regulatory measures.
Sadan said: “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.
“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.”
The regulator’s Financial Lives 2022 Survey showed that in May 2022, 79% of consumers believed that businesses have a wider social responsibility than simply short-term profit. However, separate research from Boring Money found 86% of adults do not feel confident investing in current sustainable funds.
Sadan said that 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.
According to Sadan, as financial services firms adapt to the changing world, their governance arrangements, incentives structures and capabilities must keep pace and remain consistent.
“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.
“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,” he added.
Respondents have until 10 May 2023 to provide feedback on the paper and the role the FCA should play, including on the suitability of its current regulatory framework in adapting to achieve positive change.
