FCA issues guidance on shareholder cooperation for ESG stewardship

January 2rd, 2024

The Financial Conduct Authority (FCA) has published guidance on ESG stewardship engagement and collaboration in relation to legislation on insider trading.

The UK regulator confirmed that voting intentions and broader stewardship plans regarding ESG are usually not considered insider information, although shareholders should refer to the requirements under the UK Market Abuse Regulation (UK MAR).

It also said it was “unlikely” to investigate situations where shareholders have traded based simply on their own intentions and knowledge of their own strategy, but said it may review situations where other market participants also trade based on the knowledge of that party’s voting intentions or stewardship plans.

However, the regulator said it did not “consider this situation is likely to arise in the context of bona fide discussions between shareholders in respect of ESG stewardship”.

The FCA released a Primary Market Bulletin (PMB) to address questions from stakeholders following its final notice on its investigation into Sir Christopher Gent, former Chairman of Convatec Group.

In 2022, the FCA imposed a financial penalty of £80,000 on Gent for unlawfully disclosing inside information, in breach of Article 10 of the EU MAR, which prohibits insider trading. It issued a PMB with a statement of the law and guidance relevant to the case.

Following its publication, the FCA has received enquiries from different stakeholders in relation to Article 10 in the context of shareholder co-operation regarding ESG stewardship. For example, the regulator was asked whether Article 10 might apply where major shareholders wish to discuss their stewardship plans for specific issuers with other shareholders with similar ESG strategies.

In the bulletin, it said: “The FCA of course encourages market transparency in ESG matters.

“We note that asset managers and institutional shareholders may choose to make their broad or sector-specific ESG stewardship programmes public which, in addition to any public benefit, would also reduce the risk of inside information arising from stewardship plans for specific issuers and thus make stewardship collaboration between shareholders more straightforward.”