We already see this happen with ESG rating providers, who simply do not have the data to rate companies such as Greencoat UK Wind or Schroder BSC Social Impact. So if we are not careful, we will be in a bizarre situation where some of the greenest, highest-impact assets you could possibly invest in are sidelined by a new disclosure regime because 'the computer says no'.
A final challenge is one of supervision. On climate-related disclosures, which are already in force for some large asset managers, the FCA anticipates acting “reactively where needed” and taking action “if firms failed to make disclosures or if these were misleading/constituted serious misconduct”. It remains an open question whether the FCA will do what it takes to ensure that its new disclosure regime is followed in spirit as well as letter, especially if some elements of that disclosure are descriptive rather than pure numbers.
These are big challenges. But it is hard to think of many more crucial areas for the FCA to get right over the next 12 months. The prize is a disclosure regime that delivers on the regulator’s priorities of promoting transparency and trust. The risk is that the regime provides a comfortable home for greenwashers while leaving some of the most impactful ESG investments out in the cold.
Nick Britton is head of intermediary communications at the Association of Investment Companies
