Earlier today AJ Venter and Scott Paterson attended the SFE Asset Management Group’s panel event at the awe-inspiring National Robotarium to consider environmental, social, and corporate governance (ESG) matters in the context of financial services.   Taking as read that there is no universally accepted codification of ESG and therefore significant scope for businesses to apply their own interpretation where regulatory compliance is not mandated, the panel gave insightful views on the ESG challenges faced by financial services business. 

Key takeaways from the discussion are:

• Opportunity: key to unlocking the value in ESG is to focus on opportunities for businesses and not to get trapped in a ‘compliance burden’ paradigm.
• Unintended Consequences: businesses need to grapple with the unintended consequences of myopic compliance – e.g. a mine sourcing essential materials for energy transition may appear to be positive but its activities could also be decimating an area of rich biodiversity or facilitating human rights violations.  To that end single scorecard metrics are simply not good enough and ‘old school’ analytics are also required to help see the full picture.  The FCA's new Anti-Greenwashing Rule requiring sustainability claims to be fair, clear and not misleading (due to come into force from the end of May 2024) is an example of how regulators are expected to be stepping up scrutiny on claims relating to ESG matters. 
• Driving Change: financial services businesses have the power to drive change, and the most impactful way to do that is through proactive engagement.  The financial services environment already accommodates long term goals and strategies for clients and driving long term ESG changes should form part of that approach.
• E and S and G: most regulation and client engagement relate to Environmental aspects, however, the Social and Governance aspects are equally important components of the ESG agenda.  Reliable data remains a huge challenge especially in relation to Social aspects.  The expectation is that rapid advances in technology and, AI in particular, will be able to make significant inroads in data gaps.  It is also worth noting that regulators are increasingly interested in ESG ratings and data providers.  For example, the FCA has welcomed the voluntary code of conduct launched by the International Capital Market Association and the International Regulatory Strategy Group in December 2023.
• Consistency: lack of standardisation and consistency of reporting are key concerns.  Duplicative counterparty reporting and widespread inconsistency underscore negative perceptions about the value and reliability of ESG reporting.  It is incumbent on financial services businesses to come together to promote standarised and consistent reporting for the sector.

For more information on Burges Salmon's ESG expertise and services see BS ESG.