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    FCA Issues Updates on ESG Integration and Disclosure Requirements

    July 04, 2022

    The Financial Conduct Authority (FCA) provided an update on its discussion paper on sustainability disclosure requirements and investment labels and published its response to the exposure drafts of the International Sustainability Standards Board (ISSB) on general sustainability-related disclosure requirements and climate-related disclosure requirements. Additionally, FCA published the feedback statement on the environmental, social, and governance (ESG) integration in the capital markets in the UK.

    Discussion paper on sustainability disclosure requirements and investment labels. FCA announced that its discussion paper (DP21/4) on sustainability disclosure requirements and investment labels has now been closed for comments. With the discussion paper, FCA wanted to gather views on the new sustainability disclosure requirements for asset managers and the FCA-regulated asset owners as well as a new classification and labeling system for sustainable investment products. Feedback on the discussion paper will help FCA develop its proposed rules. Initially, FCA had aimed to consult on the proposed rules in the second quarter of 2022; however, it is now planning on consulting in the Autumn, allowing it to take account of the other international policy initiatives and ensure that stakeholders have time to consider these issues.

    Response to ISSB exposure drafts. FCA published its response to the exposure drafts on general requirements for disclosure of sustainability-related financial information (IFRS S1) and climate-related disclosures (IFRS S2). FCA welcomes the exposure drafts published by the International Sustainability Standards Board (ISSB) in March 2022. However, FCA highlighted some targeted matters for consideration by ISSB. These emphasize steps that ISSB could consider to encourage widespread adoption of the baseline standards internationally—including by recognizing the different levels of familiarity with and maturity in climate—and sustainability reporting across corporates in different jurisdictions. Addressing these matters could help to mitigate implementation challenges and, therefore, further enhance the effectiveness of the global baseline. For instance, FCA encourages ISSB to consider refining certain definitions, developing guidance to improve the consistency of implementation by preparers, and providing for limited flexibilities and scaling and phasing of requirements, while upholding the welcome ambition of the proposals. FCA also notes the importance of interoperability and encourages ISSB to consider providing examples to demonstrate how the standards act as a global baseline that can interoperate effectively with additional jurisdiction-specific requirements via a “building blocks” approach.

    Feedback statement on ESG integration in UK capital markets. FCA published the feedback statement (FS22/4) to its discussion chapter (in consultation paper CP21/18) on environmental, social and governance (ESG) integration in the capital markets in UK. The feedback statement brings together respondents’ views and sets out FCA’s policy response and potential next steps. FCA sets out its policy actions related to the bond frameworks and prospectuses, the voluntary adoption of existing industry standards, the oversight of verifiers and second-party opinion providers, and the ESG data and rating providers. In CP21/18, which was published in June 2021, FCA included a discussion chapter (Chapter 4) on the ESG integration in UK capital markets. In the discussion chapter, FCA had requested feedback on the potential harms that may require policy intervention and on actions that FCA could take to enhance market effectiveness and promote a sound ESG data ecosystem. FCA sought views on issues related to the green, social, sustainability, and sustainability-linked debt instruments (ESG-labeled debt instruments) and the ESG data and rating providers. Along with the feedback statement, FCA published a Primary Market Bulletin 41, which elaborates on its response to the feedback received on the discussion chapter. The Bulletin covers important issues related to ESG-labeled debt instruments. As mentioned in the Bulletin, FCA:

    • encourages issuers of ESG-labelled Use of Proceeds debt instruments to consider voluntarily applying or adopting relevant industry standards
    • reminds issuers, their advisors, and other relevant market participants of their existing obligation to ensure any advertisement is not inaccurate or misleading and is consistent with the information contained in the prospectus
    • encourages issuers and their advisors to consider verifiers’ and assurance providers’ expertise and professional standards and to engage with second party opinion providers and verifiers who adhere to appropriate standards of professional conduct

     

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    Keywords: Europe, UK, Banking, Securities, ESG, Climate Change Risk, Disclosures, Sustainability-Related Disclosures, Sustainable Finance, Debt Instruments, ISSB, FCA

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