ESG 1 Purpose and application

The ESG sourcebook sets out rules and guidance concerning a firm’s approach to environmental, social and governance matters.

ESG 1A and ESG 2 contain rules and guidance regarding the disclosure of climate-related financial information consistent with TCFD Recommendations and Recommended Disclosures.

The disclosure requirements within ESG 2 relate to either the assets that a firm manages or administers generally, published in a TCFD entity report, or assets relating or corresponding to particular financial products or services, disclosed via TCFD product reports.

ESG 3 applies to all firms and sets out the way in which the rules and guidance in ESG 4 and ESG 5 apply to different types of firm. Although most of the rules in ESG 4 and ESG 5 apply to managers, a number of rules apply to distributors and some also apply to firms more generally.

ESG 4 sets out ‘anti-greenwashing’ rules which apply to a firm, regardless of whether or not it is undertaking sustainability in-scope business, with respect to references the firm makes about the sustainability characteristics of a product or service.

ESG 4 also contains the rules and guidance which apply to a manager that is undertaking sustainability in-scope business, restricting the use of a sustainability label in relation to a sustainability product unless certain criteria are met and setting out naming and marketing conditions in relation to those products. In addition, ESG 4 contains rules and guidance which apply to distributors that distribute sustainability products and recognised schemes, including ETFs that are recognised schemes, to retail clients.

ESG 5 contains the rules and guidance which apply to a manager undertaking sustainability in-scope business with respect to the consumer-facing disclosure, pre-contractual disclosure, public product-level sustainability report and (where applicable) on-demand sustainability information that the manager must produce in relation to a sustainability product, together with rules and guidance requiring a manager to produce an entity-level report.

The TCFD-related disclosures are intended to help meet the information needs of market participants, including a firm’s institutional clients (e.g. pension trustees, employers and corporate investors) and consumers of their products (e.g. pension scheme members and retail investors), in relation to the climate-related impact and risks of a firm’s TCFD in-scope business.

The sustainability-related rules and guidance in ESG 4 and ESG 5 are also intended to help meet the information needs of market participants, including a firm’s retail clients and institutional clients in relation to the sustainability characteristics of a sustainability product and the sustainability-related risks and opportunities in relation to a manager’s sustainability in-scope business.

The FCA recognises that at least for a transitional period there may be data and methodological challenges. Nevertheless, we expect firms to provide sufficient information to clients and consumers. Firms should still disclose metrics and quantitative scenario analysis or examples in accordance with the rules in this sourcebook where such disclosure would remain fair, clear and not misleading. Firms should also appropriately explain any limitations on their ability to disclose and the steps being taken to address those limitations.

The specific application of the rules and guidance in ESG 2, ESG 4 and ESG 5 is set out in ESG 1A and ESG 3.