By Joshua Ng
The UK’s Financial Conduct Authority (FCA) has published a Discussion Paper on ESG (Environmental, Social and Governance) Disclosure,[1] proposing to implement measures that will require asset managers and FCA-regulated asset owners to (a) disclose more of their ESG-related information and (b) label investment products according to their sustainability characteristics. But how does this compare to Singapore’s regulatory regime?
The FCA Discussion Paper
The FCA’s proposed disclosure regulations are twofold. Firstly, FCA-regulated asset managers and owners will have to provide both consumer-facing (at the product level) and detailed disclosures (at the entity and product level) to prospective investors.
Secondly, FCA-regulated asset managers and owners will have to label their investment products according to a five-tiered system:
In summary, under this new regime, investors will have access to three product-level sustainability disclosures (a product label, a brief, and a detailed one) and one detailed entity-level sustainability disclosure.
Singapore’s Requirements
In Singapore, the Singapore Exchange (SGX) requires listed firms to publish an annual report on their ESG practices.[2] When it comes to asset managers and investment products, the Monetary Authority of Singapore (MAS) merely publishes guidelines on responsible financing, and offers grants for external review of sustainable bonds.[3] Unlike the UK, there are no hard legal requirements for ESG disclosure.
The Way Forward
A recent FCA survey found that 80% of investors wanted their money to ‘do some good’ while also providing a financial return.[4] There is a clear growing demand for ESG-compliant investment products. However, the way that MAS plans to meet this demand is unclear. One one hand, the MAS may have a point in taking a ‘soft touch’ approach as opposed to the enactment of hard regulations like the FCA. Doing so would certainly not cause firms to complain about harsh regulatory regimes. But on the other hand, by enshrining in regulation the requirement to provide easily-accessible disclosures, the MAS can guarantee that consumers are made aware of the products that can meet their demand. In the first place, investment firms, being market-driven like any other firm, are unlikely to resist this regulation given the high demand for sustainable investment products. Perhaps this time, the path to sustainable (in both senses of the word) growth lies in consumer, not company, friendliness.
[1] Financial Conduct Authority, FCA DP21/4: Sustainability Disclosure Requirements and investment labels, https://www.fca.org.uk/publication/discussion/dp21-4.pdf, accessed 27 Nov 2021
[2] Joseph Chu, Joseph Tay, Tan Wei Shyan, A closer look at Singapore’s mandatory corporate ESG disclosures and associated legal risks, https://www.iflr.com/article/b1sgmvnq1ndxc8/a-closer-look-at-singapores-mandatory-corporate-esg-disclosures-and-associated-legal-risks, accessed 27 Nov 2021
[3] Monetary Authority of Singapore, Sustainable Finance, https://www.mas.gov.sg/development/sustainable-finance, accessed 27 Nov 2021
[4] Financial Conduct Authority, FCA DP21/4