Does more need to be done to hold banks and the financial services industry to account for their ESG practices? Mark Woodward, Investor-Director at Flotilla, shares his thoughts.
The financial sector is in the foothills of sustainability action. Transparency and accountability are increasing, but consistency is a major issue. Now is the time for private players to accelerate the green transition together.
Thankfully, you can’t just label something as sustainable any more – the proof must be tangible. From a financial services point of view, the Financial Conduct Authority has now put the Sustainability Disclosure Requirements (SDR) into place, which makes regular reporting mandatory for UK firms marketing funds as sustainable. That’s helping, but there’s still a lot of uncertainty about who and what will be captured by SDR.
Transparency is just the starting point, there’s got to be some kind of agreement about what firms are being transparent about. Processes must be aligned so that everyone can understand the significance and real-life impact of claims – especially the consumer.
Regulations and responsibility
Anti-greenwashing measures are incredibly important. Many consumers don’t yet grasp the subtle nuances in the language used to describe ESG financial products, whether it’s ‘sustainable’, ‘carbon neutral’, or ‘green’, so anti-greenwashing measures are essential for their protection.
The public is at the very beginning of its carbon literacy journey. Moving to a position of greater transparency can only fuel progress towards informed investment decisions. But regulations can only go so far. The onus should be on the business to prove their environmental claims, rather than on the authorities to catch them out.
No consumer will ever be fully confident decoding the minefield of different industry regulations, and they shouldn’t have to be. Financial services firms have a responsibility to put their investors’ needs first – including providing interpretable evidence about green products and services
Clampdowns from external regulators have their place, but we need to see more corporate responsibility at the board level. If you’re waiting to get caught for doing something wrong, then you’re more likely to be pushing the boundaries in the meantime. Instead, you could be building environmental agility into your business model now so that when new requirements are imposed or regulators come knocking, you’re prepared.
