On March 10, the United Kingdom’s Treasury Select Committee (TSC) released letters written to the CEO of the UK’s Financial Conduct Authority (FCA) and the Governor of the Bank of England (the Bank) and the responses to those letters. The TSC wrote to the FCA and the Bank in October 2019 and February respectively, and the responses were received in late-February.
The letter to the FCA concerned a voting initiative proposed by the Association of Member Nominated Trustees (AMNT), an industry group established to support pension scheme trustees. The AMNT believes that trustees should be adopting active stewardship policies covering Environmental, Social, and Governance (ESG) matters, and, consequently in May 2019, the AMNT proposed rules that a trustee can follow. These rules are called the Red Line Policy.
For example, in the first year of adopting the Red Line Policy, if the company has failed to introduce and disclose emission reduction targets, the trustee must vote against the re-election of the chair of the Environmental Sustainability Committee, or equivalent.
The TSC also noted that the AMNT submitted a complaint to the FCA in May 2019, alleging that the failure of the fund management industry to allow pensions scheme trustees to operate a stewardship policy governing the ESG of the companies in which they invest via fund managers amounts to a market failure. The TSC noted that this view is supported by “expert witnesses at our evidence session.”
In the letter to the FCA, the TSC asked whether the FCA was taking action in relation to this Red Line Policy and other questions relating to the FCA’s view of the issue. In his response, FCA CEO, Andrew Bailey, noted the various sustainable finance taskforces and disclosure regimes of which the FCA is a part. He specifically noted feedback statement FS 19/6, which concerns rules to improve climate-related disclosures. He did not mention the AMNT’s proposal or complaint.
In the letter to the Bank, the TSC noted various comments in the press made by outgoing Governor Mark Carney and asked several follow-up questions. For example, Mr. Carney commented that climate change could make financial assets “worthless.”
In his response, Mr. Carney noted the disclosures proposed by the Task Force on Climate-related Financial Disclosures (TCFD), which was established by the Financial Stability Board in 2015 and which are now supported by over 1,000 organizations. He also described complementary research being undertaken at the Bank.
He concluded that “we are approaching the point when TCFD disclosures need to become mandatory” and noted that such rules could build on the proposals set out in FS 19/6.
The letter to the FCA is available here, and the response is available here.
The letter to the Bank is available here, and the response is available here.