SRI Services responds to FCA Climate Change and Green Finance Consultation

SRI Services submitted a response to the FCA’s highly welcome consultation on Climate Change and Green Finance (DP18/8) last week.

You can read our submission here.  

Alternatively – here are our 12 key points that we would like the regulator to formally recognise and act on.

1. The role of investors is central to our ability to address climate change – as such it is essential that the FCA policy aligns to government (and international) commitments – such as the Paris Climate Agreement (2015)
2. The FCA must lead from the top as must all financial services firms.  Climate related disclosures, reports etc must be ‘owned’ at CEO level
3. Climate risk goes to the heart of what the financial services industry is for.    Finance shapes the world we live in – the FCA should therefore widen its view of what ‘consumer protection’ means.
4. Although this paper was hugely welcome (and contains much text that implies the FCA ‘gets it’) there remained some ambiguity and a lack of necessary urgency.  (The IPCC talked about a 12 year window to address climate change last year… but it is clear to most of us that the climate has started to shift already so rapid action is needed).
5. If the financial system is to be fit for purpose’ climate risk must be managed far more proactively than at present.  (Climate change is not only a ‘material’ risk it is an existential risk.  There is far more at stake here than the wellbeing of  the financial services community.  At some point the financial system – along with other systems – will fail if temperature increases approach the predicted +3-4 degrees above pre-industrial levels).
6. Green Finance is only part of  the solution.  The FCA must consider the whole investment market and a range of strategies aimed at encouraging progress amongst new and existing companies.  (ie improved stewardship, avoiding polluters and more positive stock selection – all have roles to play).
7. The FCA should recognise the value of the ‘broad’ SRI community because of its wide expertise and experience.  The FCA should  recognise the role of experienced collaborators eg Climate Action 100+ members and others who are used to encouraging and supporting progress in this area.
8. The TCFD framework should be supported and made use of – recognising that other valuable tools may also be useful (eg BSI).  More consistent disclosure of climate related data (as proposed) would be valuable and – yes – materiality is essential – but the absence of ‘perfect’ data should not be an excuse for inaction.  (Similarly labels and taxonomies.)
9. Different individual investors have different motivations and will (do) favour different investment strategies.  The FCA should be open minded with regard to ‘dial shifting’ solutions (See SRI Styles and our filter options for examples).
10. All financial services companies should have a publicly available climate risk report (as proposed) asset managers should also issue a brief online ‘retail friendly’ statement (our suggestion) introducing how they are manage climate risk across all assets – url linked to data/evidence.  These should be used by intermediaries.
11. Care must be taken to ensure individual (retail) investors are not left behind – fact finding process should be reviewed to ensure this is not the case, climate friendly options  should be clearly available
12. The biggest risk is of doing ‘too little too late’  – ie not recognising that this is about ‘how financial markets allocate capital’  rather than patting ourselves on the back for using better lightbulbs!

Responses to  this consultation will be made public shortly.

Other responses we would recommend are:

• UKSIF
• Transparency Task Force (linked here)
• Sarasin and Partners/ Local Authority Pension Fund Forum (linked here)
• ShareAction (linked here)

Additional current consultations:

ESMA , FRC , IA