A festival of consultations for the investment industry

UK government raises the bar on social issues, climate change and wrongdoing

The countdown to festivals finally reopening this summer after lockdown has begun, but investors and financial services professionals are in store for their very own festival – of government consultations and campaigns.

This year, the UK is significantly increasing pressure on companies and investors to take actions on wrongdoing, social and climate change, as it seeks to be a leader on such issues ahead of the COP26 summit in Glasgow this November.

In new consultation papers, the government calls on companies, investors and financial service professionals to improve disclosures of environmental risks and more robustly address issues that affect society.

TCFD Reporting

On 24 March, the Department for Business, Energy and Industrial Strategy proposed introducing rules to force all UK-listed companies with more than 500 employees to report in line with the recommendations of the Taskforce for Climate Financial Disclosures (TCFD) by 2022. The rules, which would also apply to LLPs and private companies with more than £500m turnover, are part of the government’s 2019 Green Finance Strategy to introduce TCFD disclosures for all listed companies and large asset owners.

The consultation paper, which runs until 5 May, is seen as an important step towards the UK’s ambitions to reach net zero by 2050 and be a global leader in sustainability.

Social risks in pension funds

The government has already introduced climate change disclosure requirements for the UK’s pension funds, but now it wants them to go further to address the ‘social’ part of ESG. In a call for evidence launched on 23 March, the Department for Work and Pensions (DWP) said the impact of social factors and risks on the UK’s £1trn pension scheme investments will be scrutinised by the government.

Writing in CityAm, as the call for evidence was launched, pensions minister Guy Opperman and The Five Foundation CEO Nimco Ali, urged for social issues to be at the heart of schemes’ ESG strategies as “social and environmental factors are often linked, and progress in one should not, and cannot, mean sacrificing the other”.

“For example, action on climate change will be undermined if it destabilises local communities. Progress on the environment must not come at the cost of people losing land rights or the evil of modern slavery,” they wrote.

This consultation paper seeks views until 16 June on whether pension trustees’ policies and practices on social factors are robust enough, calling on funds to provide details of their own approaches.

The DWP specifically asks for their policy on financially material social issues, whether these are considered separately to ESG factors in general, and what the government should do to ensure that trustees can meet their legal requirements.

It also wants to know how well schemes understand social factors, how companies perform on social issues, and be provided with details of relevant stewardship and engagement activities.

Whistleblowing

Lastly, the Financial Conduct Authority (FCA) has launched a new campaign to encourage individuals working in financial services to report potential wrongdoing to the watchdog.

The 'In confidence, with confidence' campaign reminds professionals there are confidentiality processes in place and that whistleblowers have a dedicated case manager who can meet with the FCA to discuss their concerns.

The watchdog has published materials for firms to share with employees and developed a digital toolkit to encourage individuals to have the confidence to step forward.

Corporate governance & audit overhaul

All this comes as the Department for Business, Energy and Industrial Strategy (BEIS) last week launched a series of proposals to overhaul auditing, remuneration and corporate governance, in a bid to address problems at large companies that create problems in wider society. The consultation, which runs until 8 July, sets out plans to break up the dominance of “Big Four” audit firms and require large businesses to be more transparent about their finances, helping to avoid company failures and safeguard British jobs.

Under the proposals, bonuses historically given to executives could be taken back if a company collapses or there are serious failings. Large companies would also have to issue resilience statements on the risks to their business, including climate change.