The Financial Conduct Authority (FCA) will be testing asset management firms on whether they deliver on their environment, social and governance (ESG) promises.
In a letter to CEOs, the UK regulator outlined five supervisory priorities in light of what it described as “ineffective governance”.
The FCA will be looking at asset management portfolios of around 1,000 firms managing approximately £11 trillion of assets for UK and global clients, ranging from large institutions to small retail investors.
The regulator said ESG is one of its key areas because it has grown in prominence in asset management circles, creating risks that some claims are misleading or inaccurate.
The FCA said it “will focus on the governance structures that oversee ESG and stewardship considerations, and we will test whether firms deliver on the claims made in their communications with investors.
We will particularly focus our supervisory activities on outlier firms that have been identified in previous supervisory activities or other ongoing surveillance.”
The FCA said it will use Taskforce for Climate-related Disclosures that many asset managers are due to publish in the first half of this year, as well as the regulator’s own upcoming Sustainability Disclosure Requirements.
“We will seek to ensure that governance bodies are appropriately structured to oversee and review management information about product development, ESG and sustainability integration in investment processes, third-party and proprietary ESG information providers, and other ESG and sustainability claims made by the firm,” the letter said.
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