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Finance for positive sustainable change: the latest from the FCA

Updated: Feb 16, 2023

The Financial Conduct Authority has published a collection of 10 articles from industry practitioners, academics and other thought leaders, with their perspectives on firms’ sustainability-related governance, incentives and competence.

This blog will sum up five main points that might be relevant to our readers.

1. Articulate short-term goals

Two-thirds (68%) of FTSE All-Share companies publish some form of net zero target, though less than half (45%) have also set interim goals for 2025‑2035.'

‘Long-term climate commitments like net zero 2050 are meaningless without short-term goals to get there.’ (p.15)

More and more stakeholders and investors are agreeing with this. In fact, the Net Zero Asset Owner’s Alliance already requires 2025 interim targets from its members and the Net Zero Asset Managers suggests 2030 at the latest.

2. Encourage staff to challenge you

I am often asked about how to avoid greenwashing, and of course there are many aspects to achieving that, but none of them are more important than having a team who can challenge you and point out if something doesn't sound quite right.

'Where staff can speak up without fear or repercussion, firms are also more likely to identify potential instances of greenwashing or misconduct or flush out weaknesses with the implementation of firm transition plans, for example, risks, conflicts, or practical application problems.' (p. 60)

3. Don't forget Scope 3 emissions

GFANZ recommends that firms

‘… cover Scope 3 emissions associated with clients or portfolio companies in sectors that are significant climate change contributors or where company Scope 3 emissions are material and can be incorporated based on data availability’. (p. 15)

Many professional services companies might feel like they can count the emissions from their office, travel and catering, and be done with it. However, the emissions of their portfolio are the ones that really matter! Scope 3 presents many challenges but also by far the most interesting opportunities for influence and leadership.

4. Add purpose (thoughtfully)

Robert G. Eccles recommends considering a purpose statement and he's come up with a rigorous criteria for creating one.

'A clear statement of purpose by an investment firm can translate to a set of investment principles and product design principles.' (p. 55)

5. Make sure that Board Members have climate change knowledge

The paper quotes a study by the Institute of Directors, which identified a number of ESG priorities for UK companies in 2022.

'These included the need for an urgent assessment of whether board members and senior executives have the skills, know-how and commitment to oversee the transition of the enterprise to net zero. Potential remedies included board training or changes to board composition.'
The author goes on to say that ‘ultimately, there will be collective responsibility for achieving sustainability aims, rather than responsibility resting solely with the sustainability function’. (p. 18)

Building knowledge across the organisation is a key part of embedding. That's where Private Goodness can help. Find out more about our Climate Change training for Boards here and all staff climate change training here.

You can read all 10 articles and learn more about the FCA's Discussion Paper here:

fca, discussion paper dp 23/1 Finance for positive sustainable change: governance, incentives and competence in regulated firms



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