In the last twenty years or so, ESG related regulation across the world has accelerated at a rapid pace and there is no sign of let-up. Governments around the world are waking up to the pressing need to address the connection between investment and the impact (either positive or negative) on global issues such as climate change. This is driving policy change towards encouraging responsible investment.
International initiatives include global targets and agreements, such as COP21 and COP26. Plus with the election of Joe Biden as US president, America has already altered its response to climate change by re-entering the Paris Climate Agreement.
Developments in regulatory compliance
The EU is very much seen as the forerunner in developing responsible investment regulation and has been the first jurisdiction to implement responsible investment related disclosure rules. Other governments and regulators, including the UK’s, are developing similar regimes.
The UK’s financial services regulators, the Financial Conduct Authority and Prudential Regulation Authority, are progressing requirements for listed companies and financial service provider firms around the transparency of both their company practices and the products they sell to customers.
For example, as of 2022, the Financial Conduct Authority require all premium listed companies on the London Stock Exchange, such as Quilter, to include a statement in our annual financial report saying whether we’ve made disclosures consistent with the recommendations of the global standard-setter, the Taskforce on Climate-related Financial Disclosures (TCFD).
The adoption of TCFD standards by investable companies should in turn help improve investment decisions being made by fund and investment managers on the basis of the more consistently presented information available to them. The FCA has also extended the requirements for TCFD disclosures to non-premium listed firms, as well as asset managers, insurers and FCA-regulated pension providers.
In turn, this should lead to better transparency of the extent to which ESG considerations have been taken account of within funds and investment portfolios, thus enabling advisers to more accurately meet their clients’ ESG preferences.