On 23 November 2020, the FCA published a speech by Richard Monks (Director of Strategy, FCA) entitled Building trust in sustainable investments. The speech was delivered at the SRI Services and Partners ‘Good Money Week’ panel discussion on 21 October 2020.
During his speech Mr Monks states that the FCA is considering whether it would be helpful to articulate a set of guiding principles to help firms with ESG product design and disclosure. The FCA has in mind the following potential principles:
- Consistency in messaging and approach. A product’s ESG focus should be clearly stated in its name and reflected consistently in its objectives, its investment strategy, and its holdings.
- 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.