SBAI Responds to FCA Paper on Enhancing Climate Related Disclosures

SBAI responds to FCA’s Consultation Paper on Climate Related Disclosures focusing on ESG beyond climate, ESG data, non-equity asset classes, and inconsistency between manager and issuer regulations.

Whilst we are generally supportive of enhancements in disclosure and risk management process, in response to a consultation on asset manager disclosure, we raised the following points:

  • Climate Focus – As climate is a subsection of the environmental considerations in ESG risks, there are other facets of ESG that are material to the investment process. Climate will therefore have varied financial materiality depending on strategy, time horizon, and traded asset classes of the product, amongst other considerations.
  • Lack of reliable ESG Data – whilst this is improving, the availability of data and agreed methodologies for the calculation of carbon-based metrics will be a substantial obstacle for the next few years. This will increase the risk of information-based gaps and potentially reduce accuracy.
  • Consideration of Asset Classes beyond Equities – the data challenges detailed above are more acute for non-equity asset classes and in some cases for equity assets outside of developed markets.
  • Lack of Differentiated Standard and Enhanced Reporting – all asset managers above the specified assets under management threshold are in scope for product level metrics-based reporting. This is inconsistent with other enacted and proposed regulations which typically have a concept of enhanced reporting for “ESG” labelled funds.
  • Level of Transparency Required in Reporting – product level reporting is mandatory for all in scope asset managers and full details of underlying holdings are required to be provided to a client on request. This level of transparency is inconsistent with similar proposed and enacted regulation and is likely to be inappropriate for commingled funds.
  • Inconsistency between Issuer and Asset Manager Regulations – issuers can report on a comply-or-explain basis, but full reporting will be mandatory for all in scope asset managers. Asset managers are subject to the same initial reporting deadlines as issuers. These points may present challenges for asset managers in collecting data and meeting the reporting deadlines.