November 2023 Newsletter

4 Dec

It’s been a busy month in ESG this November. Here are some of the highlights…

SDR Final Rules Announced

The FCA released its final Sustainability Disclosure Requirements (SDR) rules on 28th November. The SDR apply to UK firms and UK-domiciled products, and anti-greenwashing rules extend to all FCA-authorised firms making sustainability-related claims. The SDR criteria for using its four sustainability labels (Sustainability Focus, Sustainability Improvers, Sustainability Impact, and Sustainability Mixed Goals) surpasses the requirements of the Sustainable Finance Disclosure Regulation (SFDR). A sustainable objective is required as part of a fund’s investment objective, and a minimum threshold of 70% alignment to all labels must be met. The new SDR rules will be implemented over three years, beginning with anti-greenwashing rules in May 2024. The focus is largely retail-oriented, impacting Article 8 funds, even if labels aren't adopted, necessitating entity-level and product disclosures for large funds. Please get in touch if you would like to discuss the implications for your firm further. LINK

Government pledges to boost Britain’s access to nature ahead of COP28

In the run up to COP28, the UK government has unveiled a new package focusing on environmental preservation and climate change mitigation. Initiatives include the search for a new National Park, 34 landscape recovery projects, new forests, and funding for children's outdoor activities. The measures are designed to enhance public access to nature, combat climate change, and fulfil commitments to protect 30% of land by 2030. The package also includes funding for existing National Parks, anti-greenwashing rules, and introduces legislation for Biodiversity Net Gain (BNG). The new measures continue to broaden the remit of environmental sustainability, acknowledging nature's critical role in food production, water security, and overall well-being. LINK

UKSIF Annual Leadership Summit: Summary

The UKSIF Annual Leadership Summit, held in Westminster, centred on issues including COP28, FCA updates, regulation, policy, and biodiversity. With COP28 hosted by the UAE, discussions anticipated a focus on the "phase-down" vs "phase-out" of fossil fuels, urging the investment community to uphold the 1.5C goal and address barriers to decarbonization. The FCA emphasised trust, comparability, and interoperability in upcoming rules, advocating for industry convergence with ISSB, TNFD, ESG ratings, and Code of Conduct rules. The industry's priority is to enhance consumer confidence in sustainable products, moving beyond disclosure to integrate regulatory recommendations. LINK

Testing how Authorised Fund Managers are embedding the Guiding Principles in ESG and sustainable investment funds

The FCA has conducted a review to assess how asset managers have implemented the FCA’s Guiding Principles on ESG into products marketed as sustainable. The assessment considered fund disclosures, discussions with asset managers regarding their approaches, and compliance with FCA Handbook requirements. Despite finding positive intent overall from asset managers aiming to align with the Guiding Principles, some asset managers faced challenges in fully embedding the disclosure principle, making key information about such funds challenging to identify. Governance arrangements evolved over time, yet oversight challenges persisted, especially for older funds. Issues included the absence of explicit ESG objectives in some products, shortcomings in stewardship approaches, inconsistent fund holdings, and inadequate presentation of key ESG information in disclosures. LINK

Definitions for responsible investment approaches

The Principles for Responsible Investment (PRI), in collaboration with the CFA Institute and the Global Sustainable Investment Alliance (GSIA), has worked to refine and standardise terminology related to responsible investment. The focus is on defining the 'essential elements' of five responsible investment approaches: screening, ESG integration, thematic investing, stewardship, and impact investing. The defined concepts aim to provide clarity for institutional investors, regulators, policymakers, and industry participants, emphasizing that the responsible investment approaches are not mutually exclusive and are often used in combination. The resource focuses on harmonising existing terms and definitions without introducing new terminology. LINK

SEC Priority List Update

The U.S. Securities and Exchange Commission's (SEC) Division of Examinations unveiled its 2024 annual examination priorities, emphasising early disclosure to aid stakeholders in navigating regulatory changes. Its list of priorities aligns with its four-pillar approach—promoting compliance, preventing fraud, monitoring risk, and informing policy. Absent this year from the listed priorities is ESG, despite the SEC's ongoing focus on the topic through rule proposals, enforcement actions, and a dedicated ESG and Climate Task Force. The omission marks a departure from previous editions of the list. An SEC spokesperson confirmed: “the published priorities are not exhaustive and will not be the only issues addressed in FY24 examinations” and it is known that the SEC is currently working on proposals to see climate-related disclosures incorporated into annual reports. Commentators have speculated that, rather than deprioritising ESG, the omission is tactical, making the SEC less likely to fall prey to anti-ESG sentiment in the US. LINK

For further information or ESG advice, please get in touch.