The Financial Conduct Authority (FCA) appointed their first Director of Environmental Social Governance (ESG), Sacha Sadan over the summer. Over the past week the FCA has released numerous ESG themed speeches, papers, tweets and press releases. The timing of course is designed to tie into a very current acronym hashtagged all over the shop, COP26, the United Nations Climate Change Conference. It is easy to be cynical and think it's nice that Glasgow now has a glacier named after it but nothing else will change. Over the past two weeks Glasgow has taken on a new significance in financial services specifically as we now have the Glasgow Financial Alliance for Net Zero, better known as, wait for it, GFANZ.
When the delegates and protestors all go home, will GFANZ properly take off? What does success look like? Will each country pull their weight? I don't have all those answers, but I can direct you to the focus of the UK regulator and who I think will drive the change.
The FCA's previous ESG strategy had three core themes: Transparency, Trust and Tools. During COP26 the FCA announced that the priorities under TTT have evolved and there are two additional themes:
Transition and Team.
Now we have five Ts to focus on:
- Transparency - promoting transparency on climate change and wider sustainability along the value chain
- Trust - building trust and integrity in ESG-labelled instruments, products and the supporting ecosystem
- Tools - working with others to enhance industry capabilities and support firm's management of climate-related and wider sustainability risks, opportunities and impacts
- Transition - supporting the role of finance in delivering a market-led transition to a more sustainable economy
- Team - developing strategies, organisational structures, resources and tools to support the integration of ESG into FCA activities
With firms signing up to GFANZ and the FCA making clear that ESG is part of their strategy for positive change the sticks are out. Putting aside COP26, I'd say that consumer behaviour was changing financial services. Consumers see going paperless or taking out a mortgage and getting a tree planted as more than just a marketing gimmick. Consumers are alert to greenwashing and looking for their financial services providers to be accountable when it comes to ESG. As the FCA's 2020 Financial Lives Survey highlighted, almost two thirds of participants reported that they worry about the state of the world and feel personally responsible for making a difference and four out of five respondents believe businesses have a wider responsibility than simply to make profit. If firms want to keep consumers on board, they need to think in terms of the triple bottom line, not the traditional bottom line.
The triple bottom line takes in environmental health, social well-being and economic factors. You can't just bandy ESG around the boardroom and hope for the best. Consumers will judge firms on their ESG credentials. With the government, the FCA and GFANZ getting ready to take their sticks out to move us to sustainable finance and a net zero economy it could be tempting for firms to place a fanfare around short term initiatives as they see keeping customers as the carrot. In the longer term consumers will see through this so the commitment needs to be real, not box ticking …and hopefully not just a load of acronyms either!
