In recent years, the Financial Conduct Authority (FCA) has taken significant steps to make Environmental, Social, and Governance (ESG) issues a priority. The regulator has also confirmed its ambition to provide detail and granularity on its long-term objectives, priorities, success measures, and performance indicators under each of the E, S, and G dimensions.
The fundamental concepts that underpin ESG are not new, providing an overarching framework through which stakeholders can consider a company’s impact and dependencies on the environment and society, guided by the quality and robustness of good corporate governance. The standards related to ESG, however, are currently a patchwork endeavour, growing ever more complex, as the conversation moves from the periphery to the boardroom.
On 17 December 2021, the FCA published final rules for ESG disclosures by asset managers, life insurers, and FCA-regulated pension providers, in a series of ongoing enhancements to climate-related disclosure requirements. The rules take effect through a new ESG sourcebook in the FCA Handbook. Although the sourcebook relates mainly to climate-related disclosures, the FCA anticipates that it will expand the resource to cover wider ESG topics over time. Requirements in the ESG sourcebook for in-scope firms include:
The guidance confirms that firms should appropriately explain any limitations on their ability to make the required disclosures and the steps being taken to address those limitations.
There will be further statements and policies released by the FCA, Financial Reporting Council, and other UK regulators with respect to ESG reporting. Firms should consider enhancing their ESG programmes proportionate to the nature, size, and complexity of their business, in anticipation of the UK’s commitment to mandatory TCFD-aligned disclosure obligations across the UK economy by 2025.
Clearly defining your ESG goals, aligning them to your purpose and strategy, and tracking progress over time, is essential for sustainable value creation. Guidehouse can help you comply with ESG standards and regulations, including TCFD disclosures, evaluation of risk controls, benchmarking governance practices, and educating leadership on new frameworks and developments.