By Christopher Walker

 On 23 November the FCA published text from the speech “Building trust in sustainable investments” by Richard Monks, the FCA’s Director of Strategy.

The speech addressed the FCA’s initiatives in terms of protecting consumers who are increasingly interested in sustainability factors in their investment decision making, before focussing on the three recurrent ESG themes within asset management:

  • data and information;
  • product design and disclosure; and
  • ongoing performance reporting.

Firms will be particularly interested in the set of “guiding principles” provided by Mr Monks during the panel to “help firms with ESG product design and disclosure”:

  • “Consistency in messaging and approach. A product’s ESG focus should be clearly stated in its name. And then reflected consistently in its objectives, its investment strategy, and its holdings. This is all about ensuring that a product really does do what it says on the tin and matches consumers’ expectations.”
  • “A product’s ESG focus should be clearly and fairly reflected in its objectives. Where a product claims to target certain sustainability characteristics, or a real-world sustainability impact, its objectives should set these out in a clear and measurable way.”
  • “A product’s documented investment strategy should set out clearly how its sustainability objectives will be met. This should include describing clearly any constraints on the investible universe. This includes any screening criteria and anticipated portfolio holdings. This should also include the fund’s stewardship approach and actions the fund manager will take if investee companies are failing to make the desired progress.”
  • “The firm should report on an ongoing basis its performance against its sustainability objectives. This is about giving consumers the information they need to understand whether the stated objectives have been achieved in a quantifiable and measurable way.”
  • “The firm should assure ESG data quality, understand their source and derivation, and articulate clearly and accessibly how it is used. This includes the use of ESG ratings in the investment process.”