The Stewardship Code is a set of principles aimed at encouraging financial players to responsibly manage their assets. The code advocates for management standards that exceed regulatory requirements.
When?
The principles of the Stewardship Code were published by the Financial Reporting Council (FRC) in 2010. Already updated in 2020, a revision is currently underway and is expected to be published in early 2025.
Which players are involved?
The code is aimed at asset management companies, asset owners and financial service providers.
Signing up to the code is voluntary and allows players to distinguish themselves through their good practices. To become a signatory, players must apply to the FRC and publish a stewardship report attesting to their compliance with the code's principles over the last financial year. As of February 2024, 273 players had signed the code, representing a total of 43.3 billion AuM under management.
For asset managers and asset owners, there are 12 defined principles, divided into 4 parts: objectives and governance, investment approach, commitment and exercise of rights and responsibilities.
This British report, which is essentially qualitative, requires a great deal of information and a high level of detail. There is no international equivalent.
For further information: https://www.frc.org.uk/library/standards-codes-policy/stewardship/uk-stewardship-code/
The Task Force on Climate-Related Financial Disclosures (TCFD) is an international working group that sets forth recommendations on climate-related financial disclosure to enhance corporate financial transparency. These recommendations are designed to furnish information on climate-related risks and opportunities to facilitate investment decisions. The report is structured into four sections: governance, strategy, risk management, and indicators and targets. The UK has opted to mandate this report for certain entities.
When?
The TCFD report is published on two levels:
The TCFD report comprises recommendations established by an international working group and embraced by the UK Financial Conduct Authority to impose reporting obligations. Specifically, the UK Financial Conduct Authority (FCA) has outlined reporting requirements grounded in the recommendations issued by the TCFD within the ESG sourcebook. These new regulations mark a notable progression in the UK's ESG regulatory framework.
For further information:
https://www.handbook.fca.org.uk/handbook/ESG/1/?view=chapter
Unlike previous reports, IFRS S1 and S2 are international standards established by the International Sustainability Standards Board (ISSB). The aim of the ISSB is to provide a global reference base for sustainability disclosures in reporting.
These 2 standards require an assessment of risks and opportunities based on the principle of financial materiality.
IFRS S1 is divided into 4 parts, all with the aim of managing the risks and opportunities associated with sustainable development: governance, strategy, identification and monitoring, and entity performance. The data requested is mainly qualitative. The requirements of IFRS S2 are consistent with the 4 recommendations published by the TCFD.
For example, asset management companies will have to report on their absolute scope 1, 2 and 3 gross emissions, as well as on the amount of assets under management.
When?
These standards came into force on January 1, 2024.
Each country decides whether or not to require entities to comply with IFRS. The UK is committed to adopting them, and plans to validate them by July 2024, by incorporating them into the UK Sustainability Disclosure Standards (SDS).
For further information:
https://www.ifrs.org/issued-standards/ifrs-sustainability-standards-navigator/
To help UK companies and financial institutions effectively develop and disclose their transition plans, the UK government has launched the Transition Plan Working Group.
When?
This group has developed a framework, the final version of which was published on October 9, 2023. This disclosure framework is voluntary, so there is no publication date.
Which players are involved?
British companies and financial institutions.
The Transition Plan Taskforce framework has been set up to guide the publication of information on climate transition plans in various reports, including the TCFD report and IFRS S2.
The finalized TPT framework aims to offer comprehensive guidance on the decarbonization trajectory, encompassing Scopes 1, 2, and 3 emissions. It underscores the significance of establishing quantifiable targets and robust governance structures. Additionally, these TPT guidelines are crafted to align with the global standards established by the ISSB.
The objective is to lessen the reporting burden and establish a global reference for transition plans. Indeed, numerous countries are already in the process of implementing transition plan requirements. For instance, companies in the EU and the USA are mandated to develop transition plans under existing or forthcoming regulations.
For further information:
https://transitiontaskforce.net/about/
What?
In October 2022, the Financial Conduct Authority (FCA) unveiled proposed regulations aimed at tackling greenwashing, known as the Sustainability Disclosure Requirements (SDR). These measures encompass transparency requirements and the categorization of investment products based on a labeling system.
When?
The FCA published the final version of the SDRs in November 2023. The implementation timetable is available, with reporting starting in December 2025 for product- and entity-level information.
Which players are involved?
UK-domiciled asset managers who market funds in the UK and distributors.
To assist consumers in navigating the sustainable investment market, SDR is introducing four labels representing various sustainability objectives and investment approaches: Sustainability Focus, Improvers, Impact, and Mixed Goals. Moreover, an anti-greenwashing regulation mandates financial players to communicate the ESG characteristics of their products with robust, pertinent, and credible evidence. Lastly, SDR introduces regulations on the naming and marketing of financial products, governing the utilization of sustainability-related terms in product names.
With a clear timetable and full implementation slated for 2025, SDR is poised to revolutionize how companies, investors, and consumers approach sustainability. Understanding and adapting to SDR will be essential for entities aiming to remain compliant, competitive, and at the forefront of sustainable financial practices.
For further information:
ESG Connect's functionalities align with the UK's sustainability requirements, while mitigating the costs and risks linked to ESG processes. Our ESG Operating System facilitates:
Navigating between regulations is made easier, and future developments are anticipated for easy implementation.
