During 2021, it will become clear that Environmental, Social and Governance will be a factor of financial and legal materiality for all listed companies. There are a number of significant regulatory and market activities that will accelerate this transition and will require all public companies to provide clarity on Board governance; how ESG is being embedded within a business; and the relevant performance measurement criteria.

• A number of fund managers with a total of $9 trillion in assets under management have publicly set a net zero goal across their entire investment portfolios. In addition, six of the largest investor alliances, with assets of over $103 trillion, are demanding all companies to fully reflect the impact of climate change in their results.
• From January 2021, under new FCA rules, all premium listed companies in the UK will have to provide TCFD disclosure. The FRC has also requested that all listed companies immediately follow the TCFD and SASB frameworks on a comply or explain basis.
• The UK Government has updated its emission reduction target to at least 68% by 2030. As we approach COP26 in November 2021, there are expected to be regulatory changes put in place to ensure these targets are achieved.
• The Bank of England is in the process of stress testing the financial system to assess individual and collective resilience to climate change. This will result in banks, insurers and pension funds requiring clear climate disclosures on risk and emissions reduction with an expected impact on capital and asset pricing in the future.
• In its annual review for 2020, the FRC highlighted purpose, culture, diversity and stakeholder engagement as key factors and the need for companies to move from describing an engagement process to providing clear outputs – providing evidence of influence on decision-making and strategy.

Due to these changes in the financial system and regulations, ESG scrutiny is no longer limited to large, listed companies, but is being extended to all companies with exposure to the equity, debt and insurance markets. All listed companies will be examined and expected to deliver long-term financial sustainability. The intangible drivers of ESG, which could previously be covered by commentary within the Annual Report, now require clear measurement and evidence of how they are being examined by the Board, embedded throughout the business and linked to strategy and remuneration policy.

Please do not hesitate to contact us if you would like more information on our approach and how SIFA Strategy can work with you to address the ESG changes in 2021 and beyond.