UK watchdog consults on sustainability governance frameworks

February 17, 2023

The UK’s Financial Conduct Authority (FCA) has launched a discussion paper on the role of sustainability-related governance frameworks in finance.

As part of its commitment to creating a policy approach around ESG governance in regulated firms, the regulator is now inviting feedback on how such frameworks can be best designed and used.

In a wider sense, it is hoped this will help the industry contribute to positive sustainable change both in society and at an environmental level.

Feedback is being sought from across the UK financial services industry, as well as academics, think tanks, trade bodies, and other regulators.

“The aim of this discussion paper is to encourage an industry-wide dialogue on firms’ sustainability-related governance, incentives, and competencies,” explained the FCA in its paper.

“In a field where there are many initiatives taking place, our aim is to help narrow this field and help with highlighting good, evolving practices if finance is to deliver on its potential to drive positive sustainable change.”

As context, the discussion paper includes reflections on how governance, incentives and competence are considered in the TCFD’s recommendations.

The FCA also assesses how these expectations are evolving in the work of the International Sustainability Standards Board, the UK’s Transition Plan Taskforce, and the Glasgow Financial Alliance for Net Zero.

Expanding on this, the paper looks at how regulated firms’ sustainability objectives and strategies can be supported by governance frameworks, and the role asset owners and asset managers can play in stimulating change.

Based on these topics, the FCA is seeking feedback on how firms can embed clear purposes, and create frameworks that make positive impacts in terms of sustainability.  

The second part of the paper is dedicated to a collection of articles by “external experts” from a range of different groups. These are effectively provided as guidance to firms on how sustainable governance frameworks can be created.

The deadline for feedback is 10 May 2023. Any next steps will be determined by the FCA after all the paper’s input has been considered.