Posted on: February 13th, 2023
[Download ‘SRI Services response to DP 23 1 (10 May 2023) – Finance for positive sustainable change: governance incentives and competence in regulated firms’ .]
SRI Services is delighted to welcome DP23/1 – the FCA’s latest sustainability related discussion paper, which was published on Friday, 10 February 2023.
As this is a ‘discussion paper’ its focus is on asking questions – not proposing solutions – but the overlap with the recent SDR consultation is nonetheless clear. Both are aiming to drive sustainability standards higher.
In this DP the FCA is primarily asking for feedback on ‘sustainability-related governance, incentives and competence in regulated firms’. The paper notably builds on the following:
DP23/1 focus is some of the important practical mechanics that will ensure regulated firms will help, not hinder, progress towards the net zero.
The paper recognises the fact that investment markets, and in particular the way in which regulated entities operate, is a crucial part of facilitating the shift to net zero, recognising that how investors behave influences investee company activity significantly. (Investors are of course not the only drivers of changes … but their importance is clear.)
Commenting on the paper SRI Services founder Julia Dreblow added:
” By focusing on ‘governance’, ‘incentives’ and ‘competence’ – three different but intertwined areas – the FCA is taking important steps towards acknowledging the kind of root and branch changes that must take place if we are to achieve Net Zero.
The financial services and investment communities have undergone a massive shift 2015. Talk of ESG and sustainability is everywhere. New funds have been launched, funds have been rebadged and almost all asset managers now ‘say’ they integrate ESG and have a responsible ownership strategy. Yet global emissions continue to rise. Investors can not be held responsible for everything of course – but it is clear that something is very wrong.
Concentrating on how the investment community operates is therefore crucial. We need to pay far more attention to how sustainability risks and opportunities are managed, how sustainability KPIs feed into executive remuneration (and beyond) – and skills, training and knowledge.
By rethinking these areas we can start to give climate action teeth – which, frankly, is what is needed if we are to protect both markets and people.”
The introductory text on the FCA landing page for the publication reads as follows:
We are asking for views on sustainability-related governance, incentives and competence in regulated firms.
We are committed to supporting the role of the financial sector in enabling an economy‑wide transition to net zero, and to a sustainable future more broadly. To help the financial industry deliver against its potential to drive positive sustainable change, we are encouraging an industry-wide dialogue on firms’ sustainability-related governance, incentives, and competence.
This is a fast moving and evolving field where there are many initiatives taking place. We want to help narrow this field and highlight good, evolving practices while considering whether there is a case for further regulatory measures in this area.
To encourage diversity of thought and wide-ranging debate, this Discussion Paper also includes commissioned articles from experts with relevant and interesting perspectives on firms’ sustainability-related governance, incentives, competence and stewardship arrangements. We are grateful to the authors for their views and contributions.
Read further: https://www.fca.org.uk/publications/discussion-papers/dp23-1-finance-positive-sustainable-change