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FCA outlines what improvements are needed in ESG benchmarking

Regulator the Financial Conduct Authority (FCA) has outlined the improvements financial services firms need to make when it comes to their ESG benchmarking work.

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These recommendations follow the completion of a preliminary review on ESG benchmarks, concluding the ESG-related disclosures made by benchmark administrators has been poor. Among the issues it discovered was the lack of detail on the ESG factors considered in the benchmark methodologies.  

 

This lack of detail has risen concerns by the regulator that this could contribute towards or lead to greenwashing, especially when these benchmarks purport to pursue ESG objectives apply ESG factors in such a way that the constituents are not materially different to a similar non-ESG benchmark.  

 

The FCA also found there was failure to ensure these underlying methodologies are accessible, clearly presented and explained to users, they’re not fully implementing their ESG disclosure requirements, and their failing to implement their ESG benchmarks’ methodologies correctly.  

 

It has said it expects all benchmark administrators to have strategies to address these issues and will be doing more work in this area to address the potential failing – expecting firms to be able to explain these strategies on request.

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