Recent UK, Japan, and Hong Kong ESG DevelopmentsJanuary 14, 2022
We’ve heard a lot over the past year about Environmental, Social and Governance (ESG) regulatory developments affecting asset managers in the European Union, which is regarded as leading the way on ESG regulation. However, regulators in other jurisdictions have also been taking actions in this area. This alert considers those actions, and related developments, in the United Kingdom, Japan and Hong Kong. In particular, we highlight some themes emerging from the global regulatory response in this area including international promotion of the use of the recommendations published in 2017 by the Task Force on Climate-related Financial Disclosures (TCFD).
Regulators in the United Kingdom and Hong Kong are sending a clear message that compliance with ESG disclosure requirements is important, and that greenwashing will not be tolerated. Asset managers have been warned and now need to take action. The Japanese regulator also seems not far behind.
FCA Guiding Principles on ESG and Sustainable Funds
On 19 July 2021, the UK Financial Conduct Authority (the FCA) published its Guiding Principles on design, delivery and disclosure of ESG and sustainable investment funds in the form of a Dear Chair letter.1 These Guiding Principles are a statement of the FCA’s expectations for FCA authorised funds which make ESG-related claims. The guiding principles are based on existing rules rather than new ones and the aim of the principles is to avoid greenwashing in the disclosure of authorised funds in the United Kingdom, though the principles may be relevant to other products as an indication of the FCA’s views. Whilst the guiding principles are highly relevant for the design of new products, they apply equally to existing ones and should be considered by firms in their next periodic review of a product that makes ESG or sustainability claims.
FCA Policy Statement on Climate-Related Disclosures by Asset Managers, Life Insurers and FCA-Regulated Pension Providers
On 17 December 2021, after a consultation process, the FCA published a policy statement containing the final rules and disclosures on climate related disclosures by asset managers, life insurers and FCA-regulated pension providers (the Policy Statement).2 The new disclosure obligations are consistent with the TCFD recommendations. The rules are in line with the UK government’s roadmap to adopt mandatory TCFD-aligned disclosures across the UK economy by 2025, and will support the transition to net zero by 2050.
The TCFD was established by the Financial Stability Board to develop recommendations for effective climate-related disclosures to promote informed investment decisions. The TCFD published eleven recommendations on climate-related financial disclosures in June 2017 (the TCFD Recommendations). These TCFD Recommendations span four general themes: governance; strategy; risk management; and metrics and targets.
The consultation process has resulted in some changes…