In its 2023 Sustainability Disclosure Requirements and Investment Labels regulations, the Financial Conduct Authority (FCA) came to an interesting conclusion: “We have said that governance is an enabler of environmental and/or social outcomes, rather than an end in itself. So, products investing in assets with good governance alone would need to do more to qualify for a label.”
At the time, I was very enthusiastic about this part of the regulations. My gut personal reaction told me that the E (environmental) and S (social) is where you make positive, tangible, exciting change and the G (governance) is about high-level, formal, remote decision-making and corporate structures. Necessary, but dull.
I also hoped that the FCA’s separation of the G would help put an end to the ubiquity of the term ESG, used by many, often carelessly, to refer to all different types of sustainable, responsible and impact fund and investment strategies. Even if governance was important, that darn G had a lot to answer for in the catchiness of the term ESG and its contribution to the greenwashing phenomenon that the FCA was rightly trying to tackle.
Many months later, after a period where I have been broadening my horizons to embrace social issues as much as my go-to environmental concerns, I find myself thinking a lot about good old governance. There are a couple of reasons for this.
First, practising as a compliance manager at a growing adviser firm, I see the benefits of a strong structure, good culture and clear and well-constructed processes. As the FCA said, you need this to enable good client outcomes, whether environmental, social or financial. Governance ensures not only that people do the right thing – and do the thing right – but facilitates this with the necessary knowledge, tools, processes and resources. Governance provides checks and oversight to ensure satisfactory performance and outcomes and to keep policy and process up to date and adaptable. It knits together the bottom up with the top down and stops things from unravelling when challenges arise.
Second, outside of work, an old friend and sister in sustainability recently asked me if I would be interested in joining her with a role in the World Federalist Movement. This group has recently launched Mega – the ‘Mobilising an Earth Governance Alliance’ – and this really got me thinking about the importance of strong governance at an institutional level.
Mega is a coalition of civil society organisations working in cooperation with like-minded governments, legislators, experts, private sector actors and others to strengthen global environmental governance and ensure that it is fit for purpose in the face of planetary crisis.
This invitation stirred thoughts on the strength of the organisations that steer and influence the financial planning world and could lead them through change and towards positive impact. Without highlighting others’ misfortunes, one of our professional bodies currently appears to be generating concerns about its “culture, independence, fiduciary responsibilities and governance”.
While I do not have the necessary inside insight to know whether these concerns are valid, I do perceive that they are a distraction from the organisation’s ability to fully flex its leadership potential in the field of sustainable finance.
We have also seen some delays, pauses and changes of approach from our regulator, the FCA, partially due, I believe, to a memo from the Treasury. All of a sudden, the message is sustained growth and not sustainable growth, a shorter handbook rather than new rules and guidance. It disappoints me to see a sudden change of tack to less regulation across the board, when what we need is better, more intelligent and efficient regulation in words that people understand and signal clearly to actions.
I agree with Mega’s view that strong and consistent governance from legal, regulatory, policymaking and management bodies is much needed, both within the finance world and more widely in society and the economy. We see both financial and political practice tending towards short-termism and voices that can promote long-term thinking are crucial. The World Federalist Movement advocates a global view and multilateral action to solve world mega-problems, rising above national interest and rivalry. Likewise, in financial planning, we need to see firms and advocates for sustainable finance working together to build sustainability and resilience for the profession and our clients.
It would be great to see organisations formed from across financial planning firms and their employees to really work together on change, innovation and improvement for the profession. I would venture that some public or citizen representation should feature too. There is a lot of thinking, acting and collaborating to be done to steer financial planning through the deep social, economic and environmental transition ahead and to hold the line firmly when the pace of change becomes a little overwhelming. At present, there are simply not enough of us working on a profession-wide basis on sustainability issues. Not enough pairs of hands to explore all the levers for change and see ideas through to fruition.
When Mega was launched, former Irish Prime Minister Mary Robinson spoke of the need for “smart coalitions”. I would echo this for the finance profession, bringing together bright minds to be applied for professional benefit and moving above corporate interest and rivalry at the firm level. There may be a need for some self-governance within our profession if we are not getting the top-down leadership we need in challenging times.
