UK FCA Discussion Paper on finance for positive sustainable change

On 10 February 2023, the UK’s Financial Conduct Authority (FCA) published a discussion paper on finance for driving positive sustainable change.  The discussion paper considers firms’ sustainability-related governance arrangements, incentives and competencies and examines how firms can support the role of finance in driving positive sustainable change and delivery in line with firms’ sustainability-related objectives.


In a field where there are many sustainability-related initiatives taking place, the FCA in publishing its discussion paper (DP23/1) Finance for positive sustainable change: governance, incentives and competence in regulated firms’ (10 February 2023), is aiming to narrow down and highlight good, evolving practices if finance is to deliver on its potential to drive positive sustainable change.  Alongside DP23/1, the FCA has published a blog by Sacha Sadan, FCA Director of ESG, highlighting the importance of starting a discussion in this area.

DP23/1 forms part of the FCA's commitment to supporting the financial sector's role in enabling an economy‑wide transition to net zero, and to a sustainable future more broadly.

DP23/1 is split into two parts as further detailed below:

  • The first part is set out in Chapters 1-5 and considers how firms’ governance, incentives and competence can support positive change, along with 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.  The first part also considers training and competence on sustainability in regulated firms. In particular, the FCA explores good industry practices, identifies where knowledge gaps currently arise and queries whether further regulatory measures are necessary to help deal with them.
  • The second part includes a series of articles commissioned by the FCA from, among others, industry practitioners and academics, with relevant perspectives on firms' sustainability-related governance, incentives, competence and stewardship arrangements. The FCA notes that these may encourage firms to review their practices, even without it setting further regulatory expectations.

The FCA encourages firms to reflect on the matters raised in DP23/1 and consider, as appropriate, incorporating them as they review and refine their current approaches to governance, remuneration, incentives and training.

Key points raised in DP23/1 include the following:

  • The idea of introducing additional training and competence expectations to help further fill any sustainability-related knowledge gaps across the financial sector.
  • Whether there is a need to introduce additional regulation to extend individual responsibility for sustainability-related matters for senior management and whether to set specific expectations around the roles and responsibilities of governing bodies such as fund boards.
  • How can “competence washing” be combatted? This relates to firms claiming ESG-related expertise without being able to substantiate those claims.
  • Exploring metrics for linking remuneration to sustainability goals and what adjustments should be made when targets are not met.
  • Governance arrangements, incentives and structures and capabilities must keep pace with the increased focus on sustainability.
  • Additional regulatory measures could be introduced to encourage effective stewardship at asset managers.
  • Conflict policies are often generic and do not specifically consider issues as they relate to stewardship.
  • Firms abilities to collaborate are sometimes curtailed due to specific rules for example around MAR, the FCA hints at a possible relaxation of these rules to aid effective stewardship.

Next steps

The FCA has requested comments on DP23/1 by 10 May 2023.  The FCA will use feedback to DP23/1, together with ongoing analysis and supervisory engagement with firms, to consider how it can better support the industry and whether there is a case for further regulatory measures in the area of firm governance, incentives and competencies to support the role of finance in contributing to positive change.  Our Sustainable Finance and Investments (SF&I) Practice would be happy to help with further assisting on any aspect raised in DP23/1 or on sustainability-related queries more generally.

Rita Hunter
Julia Cripps
Melanie Johnson
Senior Knowledge Lawyer


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