FFS0051

Written evidence submitted by the UK Sustainable Investment and Finance Association (UKSIF)

Dear Sir or Madam,

We are very pleased to respond to the Treasury Committee’s ‘Future of Financial Services’ inquiry. UKSIF and our members see this inquiry as potentially playing an important role in ensuring we can continue to have a world-leading regulatory framework in place to promote the success of the UK’s sustainable finance sector.

UKSIF is the membership organisation for the UK’s sustainable finance community, representing

more than 240 members with over £10 trillion of AUM, including investment managers, pension funds, banks, financial advisers, data providers, NGOs, among others, committed to promoting a more sustainable and inclusive financial system that works for the benefit of society and the environment.

We are proud of the progress the UK has achieved over recent years to promote the growth of sustainable and responsible finance at home and to demonstrate global leadership. UKSIF and our members have looked to play a key role in this respect by working closely with policymakers and others to find new ways to overcome the barriers to the growth of sustainability in the UK.

For example, recently we successfully campaigned for pension schemes to report against the Task Force on Climate-related Financial Disclosures (‘TCFD’) framework as part of the Pension Schemes Act, and we are delighted the Government is now taking forward our recommendation for a central directory of schemes’ Statement of Investment Principles (SIPs) to strengthen scrutiny of schemes’ ESG investment policies.

We know there is much further to go to ensure the UK can effectively transition to a zero-carbon future and meet its ambitions. A critical part of this will be to make sure we consider new ways to build on the success of the UK’s regulatory framework in future to allow the sustainable finance sector to thrive even further, and below are some of our thoughts on how we might help achieve this.

Firstly, we strongly support Treasury’s proposal to introduce new ‘activity-specific regulatory principles’ to allow government and Parliament to ensure financial regulators have specific regard to public policy issues of relevance to the wider economy and society. While this has increasingly taken place over recent years, for example in relation to climate change, clarifying those issues of pressing concern to society that the regulators should more comprehensively consider in their activity would be a very positive development.

This would ensure regulators can more visibly demonstrate how they intend to address issues of growing concern to investors and savers, such as environmental, social and governance (ESG) factors, and ultimately become more accountable to policymakers.

One new regulatory principle to consider would be obliging regulators to have specific regard to the UK’s 2050 net-zero target and the role of financial services in facilitating the growth of sustainability in all its forms in the UK. This would help better reflect sustainability and net-zero considerations in the remit of regulators, and ensure this is more clearly linked to their primary objectives, such as promoting financial stability. As climate risks and opportunities have gradually become more embedded by regulators in their activity, we see this as a natural step to adopt; indeed the Chancellor announced in 2019 that the FCA should have regard to the Paris Agreement goals when advancing its objectives and this should extend to its supervisory activities. We would support taking this a step further in future and for consideration to be given for our proposed principle to be made a new statutory objective for the regulators to help further embed sustainability into their culture and practices.

Another regulatory principle that we would support is recognising the growing significance of international financial standards and rules in the UK’s regulatory system and the UK’s desire to actively shape these going forward. This would help ensure, and signal to financial services, that regulators will continue their focus on playing a prominent role in developing global standards, including on ESG legislation, and co-operating closely with regulators across Europe and elsewhere. Greater alignment with world-leading standards can help create a more consistent framework for our members to provide sustainable investment solutions to

investors and savers.

Secondly, in terms of improving the regulators’ policymaking processes in relation to stakeholders’ involvement, we support greater clarity being provided at an early stage over the timeframe of implementation of particularly significant rules for different firms.

This would help provide clarity for many of our members and prepare them for the huge changes many new rules will bring; a regularly updated ‘helicopter view’ of timeframes for the implementation of certain initiatives, such as the UK’s ‘TCFD roadmap,’ building on the success of the FCA’s ‘Regulatory Initiatives Grid,’ would be worth considering. Separate to this, reviewing the effectiveness of recent rules is very important and embedding review periods into the regulators’ rule-making functions should be considered to refine new rules over time and determine the extent to which they have achieved their original objectives. One example will be the UK’s new ‘green taxonomy’ currently being considered by the Treasury, which will need to be reviewed over time to reflect changes in the real economy and our understanding of what constitutes a sustainable economic activity. 

Finally, we support Parliament continuing to play an active role in considering the overall direction of policy for financial services. The influence of select committees has steadily grown in recent years, and we would stress the necessity of committees continuing to routinely scrutinise the work of regulators, including senior appointments. Select committees should have an enhanced role in scrutinising the extent to which regulators meet their new activity-specific regulatory principles set by government and Parliament; for example, a sub-committee of the Treasury Committee, with sufficient resources and expert advisers, could have a specific mandate to consider and report on this.

I hope you will think of UKSIF and our members as a constructive partner as you progress this important inquiry, and I look forward to working with the Committee going forward.

February 2021

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