Since the Construction & Real Estate Community held its webinar ‘ESG reporting for property investors – an update post COP26’ in February last year, there have been significant developments in ESG regulation that will affect real estate investment managers.
To help guide you through the complexities we have a new webinar at lunchtime on 20 April. John Forbes and Anne Johnstone who presented last time will be joined by Sam Carson, Head of Sustainability at CBRE Valuations & Advisory Services. You can find details here:
John Forbes explains in this whistle stop tour the main changes that will bring a greater level of detail to reporting obligations.
DP23/1: Finance for positive sustainable change
In the UK, the Financial Conduct Authority (FCA) have undertaken a number of consultations for regulatory provisions for ESG. The most recent discussion paper, ‘DP23/1: Finance for positive sustainable change’, was published on 10 February and runs until 10 May. We discuss this in more detail below.
The European Union’s Corporate Sustainability Reporting Directive (CSRD) came into force in January, with reporting coming in on a phased basis from 2025.
IFRS S1 and IFRS S2
The International Sustainability Standards Board (ISSB) agreed at its meeting on 16 February that it would publish the final versions of IFRS S1 ‘General Sustainability-related Disclosures and IFRS S2 Climate-related Disclosures’ in the second quarter and that they will be effective for annual reporting periods beginning on or after 1 January 2024.
Metrics for ESG as an asset class
In January, the various UK real estate industry trade bodies agreed a revised set of proposed metrics for ESG for real estate as an asset class. These have been shared with the FCA, the Taskforce on Climate-related Financial Disclosures (TCFD) and the ISSB.
FCA – paper ‘Finance for positive sustainable change: governance, incentives and competence in regulated firms’
As mentioned above, a significant step in this area was the publication by the FCA on 10 February of its discussion paper:
The FCA sets out that the purpose of the paper is ‘to encourage an industry-wide dialogue on firms’ sustainability-related governance, incentives, and competencies. In a field where there are many initiatives taking place, our aim is to help narrow this field and help with highlighting good, evolving practices if finance is to deliver on its potential to drive positive sustainable change.’ Underpinning the FCA approach are the 2017 recommendations from the Taskforce on Climate‐related Financial Disclosures (TCFD). These cover four thematic areas: governance, strategy, risk management, and metrics and targets. The FCA started with the metrics and targets and, as mentioned above, the various UK real estate industry trade bodies provided a set of proposed metrics for ESG for real estate as an asset class. You can find the paper here:
Having addressed what needs to be reported, the regulator is now turning its attention to how to ensure that this can be relied upon.
The substance of the discussion paper is in three chapters:
Chapter 2 – How firms’ governance, incentives and competence can support positive change
Although this chapter does not raise any specific questions for discussion, it provides a good background summary of the relevance, at least in the eyes of the FCA, of the TCFD, the ISSB, the UK’s Transition Plan Taskforce (TPT) and the Glasgow Financial Alliance for Net Zero (GFANZ). Even for unregulated businesses, it is a helpful guide to the lie of the land.
Chapter 3 – Sustainability related governance, remuneration and incentives in regulated firms
This chapter, which is by some margin the most comprehensive, looks at how firms embed sustainability-related considerations into their objectives and purpose, and how these are then reflected in its culture, business strategy, governance and incentives. It looks at how robust board governance, clearly defined responsibilities and accountability are essential to manage a firm’s approach to climate change and sustainability and explores whether and how remuneration can help to drive effective delivery. The FCA raises a number of specific questions for feedback.
Chapter 4 – Training and competence on sustainability in regulated firms
This chapter is on training and competence on sustainability in regulated firms. It is a high-level summary of what it says on the tin. Again, there are specific questions for feedback.
To pose your own questions to the panel and hear from John Forbes, Anne Johnstone and Sam Carson, don’t forget to sign up for the live webinar or the recording:
*The views expressed are the author's and not ICAEW’s.