FCA eyes investment classifications in bid to support ESG

The UK’s Financial Conduct Authority (FCA) has released a discussion paper to classify and label investment products to help investors better manage their sustainability.

This report coincides with the COP26 Finance Day, which sees leaders from all over the world come together and set plans for sustainability and stopping climate change.

The FCA is also in the process gathering feedback on supporting entity-level and product-level disclosures. Additionally, the regulator will leverage existing initiatives in the area to ensure coherence with market practices and regulation.

With the responses from the discussion paper, the FCA will design its policies with this in mind.

A recent report from the FCA found that 80% of respondents wanted their money to “do some good, while making a financial return.” Furthermore, 71% wanted to invest in a manner that is protecting the environment. Finally, the report claimed 71% of respondents would not want their money going into unethical investments.

This mentality of people encouraged the FCA with its proposed changes. It hopes the classification and labelling of investments would help investors gain clarity and information about the companies their money is being invested into.

FCA CEO Nikhil Rathi said, “It is vital that we innovate to support industry’s shift to a more sustainable future. That is why the FCA has been leading from the front. Developing consistent, trusted standards are a vital part of that, giving investors the confidence to put their money where it can deliver the most sustainable outcome.

“The strategy we have published today puts these standards front and centre, supported by supervision and enforcement where firms fail to meet them.”

This discussion paper is part of the FCA’s new ESG Strategy, which released today. Its new strategy aims to support the transition towards a more sustainable economy, building trust and integrity in the market for ESG products.

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