2023 signals a new chapter for ESG reporting at the FCA
On 9 December 2022, the Chancellor of the Exchequer announced a set of reforms to drive growth and competitiveness in the financial services sector. In a written statement, the Chancellor set out a collection of announcements to take forward the government’s ambition for the UK to be the world’s most innovative and competitive global financial centre. According to CityWire ‘as part of these reforms, the government will set out a new green finance strategy and consult on regulating ESG ratings.’
In light of this, Noel Gannon, CFO at AlternitOne (A1) explores what firms should expect when it comes to the FCA’s regulatory expectations with regards to ESG.
ESG ratings and data management for financial firms in 2023 will be twofold. Firstly, firms will need to ensure they have a robust ESG reporting strategy in place so that they can get effectively and efficiently report data to investors and clients in a manner that is compliant to FCA guidelines. Secondly, they will need to be address their internal operations and culture to set our their own ESG strategy.
A key concern regarding ESG ratings is the need to improve transparency and market conduct. In order to overcome this challenge, the FCA will be supporting the UK government to meet its climate targets by consulting on ESG ratings. The FCA has previously stated that there is a ‘strong rationale’ for regulating providers. In order to help the FCA achieve its goal, both The International Capital Market Association (ICMA) and International Regulatory Strategy Group (IRSG) will be providing administrative support. Britain’s chancellor, Jeremy Hunt, further commented on the news stating that the measures will help the government to deliver its commitment to align the financial services sector with its net zero efforts, whilst also supporting the sector in unlocking private financing. In an article for the Responsible Investor it was reported that Sasha Sadan, head of the FCA’s ESG division has welcomed the government’s decision and has stated that the aim will be to ‘encourage regulation that focuses on transparency, good governance, management of conflicts of interest and robust systems and controls’. The government is expected to review the regulation of ESG ratings in the first quarter of 2023.
To adhere to ESG ratings, transparency regarding market conduct will be critical factor for firms in 2023. Firms in the financial services sector can overcome this challenge by focusing on delivering clear data strategies that enable them to present information effectively to investors regarding potential investments. Secondly, when asset managers are addressing their own their own internal operations and culture for ESG purposes, assessing internal governance policies and ethical and cultural standing is a suitable starting point. Investors in 2023 will be not only be seeking the ESG rating of the company their investments are with, but also the rating of their fund managers. Firms will need to be able to deliver on the ESG quality of their own enterprise. Firms focus on their own ESG policies must first be anchored into their operations and culture at a strategic level from the board, informing the overall governance and corporate strategy of the company.
It is clear that regulation related to ESG finance will play a huge role with regards to shaping the landscape of the asset management sector moving forward. A key priority for financial market participants in 2023 will include investing in a robust data management strategy as this will in turn impact the quality and capability of ESG regulatory reporting. Firms will need to focus on creating a reporting strategy that will correspond to the FCA requirements whilst also ensuring they deliver on establishing trust, transparency and accountability with the climate and environmental commitments of companies they work with. AlternitOne supports clients with the implementation of data management strategies that can support ESG within the company structure and and regulatory reporting processes. We provide our clients with 360 support, helping them to deliver on their own internal strategies, whilst also empowering them to help their own clients to quickly understand ESG data, making investment decisions that also fulfil FCA requirements.