UKSIF summary: FCA keynote at UKSIF’s ‘Good Money Week’ and other developments

Details of our member overview can be found below, while a recording of the FCA’s keynote speech is available on our website on: https://uksif.org/good-money-week-conference-2024/.

FCA speech – UKSIF’s ‘Good Money Week’:

• In a keynote speech at our conference, the FCA’s Head of Sustainable Finance, Alicia Kedzierski, covered a number of relevant areas that we continue to focus on in our activities. On SDR, Alicia reiterated the FCA’s confidence on a ‘healthy pipeline’ of labelled funds coming to the market, which has been repeatedly highlighted in recent weeks by the regulator to UKSIF and other groups. She specified there were now 10 labelled funds overall in the market, adding this was broadly in line with their expectations at this stage of the SDR’s implementation.
• Alicia noted the need for more specificity in labelled funds’ disclosures and the importance of a ‘golden thread’ clearly linking together a labelled fund’s sustainability objective, sustainability standard, and KPIs, alongside greater evidence by firms for the selection of a sustainability standard and disclosure of the limits of this chosen standard. While she did not commit FCA to publish more detailed guidance and examples of good practice, this is an area that UKSIF will continue to raise in the coming weeks. On SDR’s extension to other parts of the market, Alicia confirmed the recent delay to FCA’s Policy Statement to extend SDR to portfolio management (more details here) and when questioned on the overseas funds consultation- originally planned in Q3 this year from Treasury- did not offer clarity in terms of likely timings.
• We remain keen to see more good practice published by FCA to assist firms further in identifying what ‘good looks like’ for each of the four labelling categories. Linked to this, there remains a need in our view for the SDR public guidance webpage to be updated on an ongoing basis going forward and importantly for this to provide a greater level of detail than what is outlined at present. Another step is consideration to resume the work of the independent Disclosures and Labels Advisory Group (DLAG), which could provide valuable cross-industry views and advice to the regulator on SDR implementation.
• Alicia noted that the main teams working on implementation were collaborating closely alongside each other- ESG policy, fund authorisations, and supervisory teams- and that her ‘ambition’ was to see many labelled funds in the industry over time. Her keynote touched on other areas separately to SDR as well. On ISSB, she highlighted continued plans to consult on ISSB-aligned standards for listed companies in Q1 next year. She added that companies should look to familiarise themselves with ISSB in preparation for implementation, and delivered a similar message on transition plans in terms of starting preparations now.
• Furthermore on transition plans, she acknowledged government policy was still at an early stage, while noting FCA would adhere to government’s direction including on any references to 1.5-C alignment. On ESG ratings, she confirmed a draft Statutory Instrument (SI) would be published by the end of this year- this is expected to bring ratings providers within FCA’s ‘regulatory perimeter’- and suggested a consultation would then take place from the regulator early next year. The consultation will set out detailed rules for the regulatory framework for ESG ratings which is expected to align closely with the EU’s approach, and we plan to continue to engage our members on this topic. Our understanding is that initial media reports were somewhat misleading in suggesting new primary legislation would be required as part of the UK’s reforms to ESG ratings.
• Finally, Alicia broadly commented that firms should “not expect massive surprises on regulation” in the near term, which suggests more of a focus from the regulator on implementing existing commitments.

Upcoming timetable of developments:

Below is an envisaged timetable of various sustainability policy and regulatory milestones for the coming months, drawn from insights from across the UKSIF team. Please note these timings may ultimately shift, while our member consultation tracker can be found here.

• Transition Finance Market Review: Our latest expectation is the review will be released w/c 14 October, with independent recommendations provided to government. We are pleased to have fed into the TFMR, engaging with its Chair Vanessa Havard-Williams and Secretariat. UKSIF’s response to the review’s initial call for evidence can be found here. Also, we have just confirmed that the TFMR Chair will speak at UKSIF’s forthcoming Leadership Summit next month. More details and registration information are here.
• Pensions investment review: An interim report by government for the first stage of the pensions review is anticipated by the upcoming Budget, 30 October. A final report is then expected in the spring, ahead of the second review stage commencing that will have a wider remit than the first stage’s main focus on investment. Our recent response to the review’s call for evidence can be found here, in which we reiterated our concerns over a shift to mandatory asset allocation to the UK for pension schemes. We anticipate a Pension Schemes Bill will be laid in Parliament in the coming months- possibly early next year- to implement the FCA’s Value for Money Framework, various measures on consolidation inherited from the previous government, as well as potentially any of the early findings of the first stage of the pensions review.
• Revised UK Stewardship Code: We hope to see the Code consultation published by the FRC in November or December, and we plan to closely engage members on the consultation including through member round tables. We continue to discuss the Code review with the FRC and industry partners (e.g. IIGCC and PRI).
• ESG ratings regulation: Treasury is expected to issue its response to last year’s consultation by the end of this year, with FCA likely to consult on detailed rules for the regime early next year.
• ISSB adoption: An independent group- the Technical Advisory Committee (TAC)- continues to provide advice to government on the UK’s adoption of the ISSB’s disclosure standards. We understand the group has been asked to accelerate its work by the new government. Final advice is set to be issued by the TAC by the end of the year ahead of government confirming its endorsement decision early next year.
• Other: We continue to await clarity on other developments including the taxonomy and transition plans. Separately, we expect timings for a number of SDR-related consultations to be pushed back somewhat (e.g. on overseas funds) in light of the SDR’s implementation challenges experienced in recent months. The upcoming International Investment Summit hosted by government on 14 October should see more clarity outlined on the role and remit of the National Wealth Fund, as well as plans for the UK’s new industrial strategy (due to be published by Spring next year). Finally, we are hosting a member webinar on the recent party conferences and upcoming Budget, which members can register for here.