The UK’s Financial Conduct Authority warned finance firms to avoid what it terms “competence-washing” within the City’s rapidly growing environmental, social and governance sector amid a battle for top talent and soaring interest in sustainable investments.
“We need to promote genuine capability-building across the financial sector, including through functional training and potentially certification,” the FCA’s top bosses wrote in a 24 November document.
It comes as competition over top ESG talent across the City intensifies, with sought-after professionals able to command bumper pay packages.
Sophia Deen, a consultant at recruitment firm Bruin Financial told Financial News in October that “the biggest demand” was for “roles at the top end” and that heads of ESG at asset managers could expect base salaries of at least £150,000, while some firms were offering candidates total compensation packages of up to £500,000 for global positions.
“Two years ago those conversations wouldn’t be happening,” Deen said then.
In document detailing FCA bosses’ responses to unanswered questions at the regulator’s 28 September annual public meeting, the watchdog said it was asked what more it would do “to ensure a culture in financial services whereby best practice becomes standard practice,” particularly in relation to” ensuring all financial decisions are sustainable ones”.
“Firms may also need to consider general staff training on climate change and net zero, and ESG more broadly – just as we are committed to doing within the FCA,” the regulator said in response. “We are committed to working with others to enhance industry capabilities and support firms’ management of climate-related and wider sustainability risks, opportunities and impacts.”
“We will continue to work closely with industry, civil society and academics to promote collaboration, shared experience and mutual support,” the document added.
Assets overseen by Europe’s sustainable investment funds are swelling to record levels as the ESG boom makes millions of dollars in additional revenues for money managers.
Data provided to FN by Fitz Partners, a firm that specialises in fund fee analysis, estimated that ESG was responsible for generating fees of $44.4m for these funds in the two years to early November 2021, up 300.4% from the end of the final quarter of 2019. That coincided with a 273.3% increase in the average assets for ESG bond funds over the same period.
Regulators are watching. Growing doubts that the products can live up to the hype are a “wake-up call” that may unleash a “panic”, one consultant has said. As US and German watchdogs probe German asset manager DWS following accusations made by a former employee about its ESG credentials, nervous rivals have toned down their marketing over fears they could be next to be targeted.
However, in mid-November the FCA’s nine-person board cautioned that there were “limitations” on what the UK regulator could achieve in its efforts to police ESG matters and called for these to be “clearly articulated”.
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