The U.K.’s Financial Conduct Authority will discontinue its work on developing a metric measuring the effectiveness of stewardship by an active investor, according to an update posted on the regulator’s website.
The FCA stressed that it still wishes to see active investor stewardship “that supports a market-led transition to a more sustainable future.” However, it admitted to “significant challenges” in creating a metric that could reflect the impact of investor stewardship on companies' sustainability strategies.
“In practice, there are many factors that affect sustainability, including social and legal factors, so isolating the effect of stewardship activities is challenging,” an FCA statement said in explaining its decision to end development of the metric.
The scrapping of the stewardship metric was announced as part of a three-year update on the FCA’s environmental, social and governance strategy, which was unveiled in November 2021.
Another metric, monitoring enforcement related to the fraud and mis-selling of ESG-related products, was also retired. However, this area of enforcement will be incorporated into the Sustainability Disclosure Requirements, a fund-labeling regulation that was first implemented in May this year.
In November, a review by the FCA found that while most U.K. fund managers had made efforts to comply with the regulator’s expectations regarding ESG and sustainable funds, further improvement was needed.
Singled out for criticism was a perception that the managers’ stewardship approaches did not meet the FCA’s expectations. According to the regulator, it was often difficult to identify the exact aim of the stewardship activities, how the activities were aligned to fund objectives, and examples of the progress they made against those aims.
