UK financial watchdog slams poor disclosures by ESG benchmark compilers

COMPILERS of benchmarks used to measure companies’ environmental, social and governance (ESG) performance will be punished if they don’t improve their “poor” disclosures to investors, Britain’s financial watchdog said on Monday (Mar 20).

Regulators are tightening ESG rules to crack down on greenwashing, or the making of inaccurate climate-friendly claims by companies and products to attract investors.

ESG benchmarks are scores used to measure the progress financial products, companies and markets are making towards a net-zero economy.

The Financial Conduct Authority said in a letter to ESG benchmarks compilers that a preliminary review had shown that the quality of their disclosures was poor.

There were often instances where compilers did not provide sufficient detail and description of the ESG factors considered in their methodologies, the letter said.

“Given the importance of ESG benchmarks and our initial supervisory findings, which indicate the potential for widespread failings, we will be doing more work in this area across the portfolio,” the letter said.

“Where firms fail to consider our feedback, we will deploy our formal supervisory tools and, where appropriate, consider enforcement action.”

“We expect you, your senior leadership, and your Board to carefully consider the messages we have set out as they pertain to your business,” the letter said.

“You should ensure that you have appropriate strategies to address them, and you should be prepared to explain these strategies at our request.”

Monday’s letter follows a previous warning to the sector in September last year. REUTERS