Insights and News /

23 October 2019 5 min read

Tip of the (melting) iceberg: getting ahead of the FCA's recommendations

Emily Farrimond

Emily Farrimond
Partner | Financial services | London

Gabriella Symeonidou

Gabriella Symeonidou
Manager | Finance Risk and Compliance | London

Last week, the FCA published a feedback statement based on responses they received to their Discussion Paper on Climate Change and Green Finance (18/18).

As a result of the statement surrounding new guidelines to be published in early 2020 around disclosures on regulated financial firms, they will have to provide the market with readily available, reliable and consistent information on their exposure to material climate change risks and opportunities. However, going forward, this will not be enough as firms will also have to integrate consideration of these material climate change risks and opportunities into their business, risk and investment decisions. The key question here is whether that was expected by firms, and even if it was, how prepared are they to actually complete this activity? Climate change risk is a complex, fairly recent mainstream concept, with models growing and improving every day, however, building this type of analysis into the core of firms’ operating models and decision making is something they are far from ready for. Time is literally and metaphorically of the essence here, as we are indeed at the tip of a melting iceberg. Financial services should not wait until regulators publish their consultation paper and further regulation by 2020; they need to start developing climate risk management frameworks and disclosing climate risk information in financial statements now.

However, by far the most surprising part of the paper, was the shout to ‘greenwashing’. The rise of ‘green products’ has been significant, global green bond issuance only have increased by 48% since H1 2018 according to recent figures from the Climate Bonds initiative, and Baringa forecasts that this market is on the cusp of exploding. For once the regulator seems to be ahead of the curve, calling out the fact that ‘greenwashing’ products are NOT acceptable to consumers. They have clearly stated that consumers MUST have access to green financial products and services, which meet their needs and preferences, and receive appropriate information and advice to support their investment decisions. This absolutely must include transparency surrounding what investment and savings funds are utilised for, with firms being able to evidence this.

As part of the FCA’s immediate actions they will be looking at ways to incentivise both firms and consumers towards green products. Don’t be surprised if they introduce financial penalties or capital add-ons for investing in high carbon emission companies. So it’s up to each and every institution to decide if they want to sit back and wait for global and local regulators to turn this into policies and legislation, or if they want to lead the way into what could be the renaissance of the financial world. Contact us to learn how Baringa’s experience in both the energy and the financial services world is better placed to help you get ahead of the curve.