April 28, 2023
Japanese Bankers Association
JBA comments on the Discussion Paper “Finance for positive sustainable change: governance, incentives and competence in regulated firms” by theFinancial Conduct Authority (FCA)
Questions

Comments

Chapter 3 – ESG governance, remuneration and incentives in regulated firms
Q1: Should all financial services firms be expected to embed・ Many firms are already implementing sustainability-related considerations insustainability‑related considerations in their business objectives andbusiness strategies, especially around emissions reductions targets. Regulatory

strategies? If so, what should be the scope of such expectations? Please
explain your views.

expectations in this area should focus on metrics and targets that are financiallymaterial and should seek to set minimum standards, allowing for firms to go above
these if desired. We note that there are differing views among regulators regarding'double materiality' and the extent of regulatory expectations on financial
institutions. Further work should be done to harmonise standards in this area.

Q2: Beyond the FCA’s ongoing work on diversity and inclusion, and・ There is a limit to the extent to which detailed regulatory expectations will be helpful

introduction of the Consumer Duty, should we consider setting regulatoryfor directing a firm's culture. We believe that more can be achieved throughexpectations or guidance on how firms’ culture and behaviours can support
positive sustainable change? Please explain your views.

engagement with firms, rather than strict requirements, as has been evidenced
through progress on D&I.
・ Firms often differ significantly in terms of culture and this is especially true ofinternational firms, where culture is decided to a greater extent by the firm's
headquarters. Regulators should adopt flexibility, taking into account different
business environments globally. Culture should be led from within firms.

Q3: What steps can firms take to ensure that they have the right skills and ・ Regulatory guidance at a high-level would be welcome as it helps ensure thatknowledge relating to material climate‑ and sustainability‑related risks,
opportunities and impacts on their boards? Should we consider setting any
regulatory expectations or guidance in this area? If so, what should be thesustainability-related training happens in a robust way, and clarifies what theregulator is expecting to see. However, as firms have different business models andmateriality-based priority areas, there would always need to be flexibility to design1Questions
scope of such expectations?

Comments
firm-specific learning programmes. The guidance provided by the CFRF on climate
training is very helpful (https://www.fca.org.uk/transparency/climate-financial-riskforum) without needing to be a mandated requirement. We believe that while bestpractice guidance is helpful, firms are best placed to design and deliver their own
training.

Q4: What are likely to be the most effective strategies in embedding climate‑・ The use of 'champions' and cross-departmental working groups and fora are usefuland sustainability‑related considerations across a firm’s operations? What isways to engage a large cohort of colleagues across a firm. However, the effective

the potential benefit of initiatives such as the appointment of functional‘champions’, or the creation of dedicated working groups or forums? Andhow can the value of such initiatives be enhanced?

strategies may be those that include remuneration and compensation strategies.
Structures are useful for disseminating information, but may be more effective whentied to compensation.

Q5: What management information does senior management use to monitor

・ We do not see a need to introduce regulatory expectations around decision-making

and oversee climate‑ and sustainability‑related developments, and to monitor

processes. Rather, regulators should focus on ensuring that data is collected andprogress against public commitments? Should we set expectations orreported in a reliable and consistent manner.

guidance for decision‑making processes, including systems and controls,
audit trails and the flow of management information to key decision‑makers?
If so, what should be the scope of such expectations?
Q6: Should we consider setting new regulatory expectations or guidance on・ While the SMF regime is an effective framework for ensuring accountability andsenior management responsibilities for a firm’s sustainability‑related strategy,

visibility for the regulator of senior managers and important decisions affecting aincluding the delivery of the firm’s climate transition plan? If so, which
existing SMF(s) would be the most suitable to assume these responsibilities?
Please explain your views.

firm, we do not agree that further regulatory expectations are required or areprescribed responsibilities in relation to a firm's sustainability strategy or climatetransition plan. We feel that responsibility for these decisions is well covered by thecurrent regime and that more detailed requirements for SMFs would not reflect theway that firms currently deliver on sustainability strategies.
・ Furthermore, we note the planned review of the Senior Managers Regime (SMR)
announced by the UK Government. Any changes to the SMR should be consideredas part of this review.
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Questions

Comments

Q7: Should we consider introducing specific regulatory expectations and/or・ It may be helpful to have further clarity on what the scope of 'products withguidance on the governance and oversight of products with sustainability

sustainability characteristics' is and whether this would include sustainable financecharacteristics, or that make sustainability claims – for example to clarify theroles and expectations of governing bodies such as Fund Boards? If so, whichmatters in particular would benefit from clarification?

product offerings, such as loans and bonds, as well as fund-related products.
・ Guidance on products is helpful and there is currently a large body of work in thisarea. Further expectations in this area may be helpful for standardisation; however,this should be done in tandem with efforts to promote international consistency on
how firms interpret green criteria.

Q8: What matters should firms take into consideration when designing

・ Alignment between a firm's strategy on sustainability and remuneration/rewards forremuneration and incentive plans linked to their sustainability‑related

employees is important to drive culture changes and delivery relative to objectives.

objectives? In particular, we welcome views on the following:a.

the case for linking pay to sustainability‑related objectivesb.

whether firms should break down their sustainability‑related
commitments into different factors, allocating specific weightings toeachc.

Regulatory guidance may be able to help define what is material in relation tocompensation and what portion of this should be assigned to sustainability
considerations.
・ Regulatory guidance should not focus on the specifics or metrics to guide thiscompensation, but rather should pay close attention to market practices andinternational considerations.

whether short‑term or long‑term measures are more appropriate, or a
combination of bothd.

whether sustainability‑related incentives should be considered for senior
management only, or a wider cohort of employeese.

how firms could consider remuneration and incentive plans in the designand delivery of their transition plansf.

remuneration adjustments where sustainability‑related targets (at either
the firm level or individual level) have not been met.

Please explain your views.
Q9: Should we consider additional regulatory expectations or guidance in anyof the areas considered in Q8? Please explain your views.
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Q10: Should we consider additional regulatory measures to encourage

Comments-

effective stewardship, particularly in relation to firms’ governance andresourcing of stewardship, and associated incentive mechanisms and conflictof interest policies? Are there regulatory barriers that we should consider?
Please explain your views.
Q11: What additional measures would encourage firms to identify and-

respond to market‑wide and systemic risks to promote a well‑functioning
financial system? How can the collective stewardship efforts of asset owners
and asset managers best be directed towards the most pressing systemic
issues? And how can remaining barriers best be reduced? Please explain yourviews.
Chapter 4 – Training and competence in regulated firms
Q12: What do you consider to be the main sustainability‑related knowledge

・ To support clients in their journey to sustainability, it is important to deliver training

gaps across the financial sector and how can these best be addressed? Whaton how to assess a net zero transition plan, how to calculate financed emissions, anddo you consider to be the potential harms to market integrity, consumer
protection or competition arising from these knowledge gaps?

also how to have effective climate conversations with corporate customers.
・ To provide sustainable financing solutions, it is important to deliver training thatensures staff know the product characteristics (e.g. Green & Sustainability-LinkedLoans) and how to guard against greenwashing risk in specific transactions.
・ The main harms of getting this wrong would be damage to the integrity ofsustainable finance markets and also poor customer outcomes. Sustainable financeis a rapidly growing area that is becoming mainstream and all market participants
must ensure it remains credible, with transactions driving real world change andsupporting genuine and ambitious sustainability performance targets.

Q13: Do you think there is a need for additional training and competence・ Currently regulatory expectations around training and competence on ESG areexpectations within our existing rules or guidance? If so, in which specificbroadly undefined. There are extensive resources relating to the E aspect, with firms
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Comments

areas do you consider further rules and/or guidance are required? Pleasesetting specific KPIs and dedicating significant resources to this area. However,explain your views.

training programmes are less developed in the areas of S and G, where firms arebeginning to develop training expectations. It is also important to increasingly focus

Q14: Which aspects of the training and capability‑building initiatives
discussed above, or any others, would be particularly useful to consider (forexample in identifying which skills and/or training is needed) and how beston this area.
・ We do not consider it necessary to set new rules relating to ESG training as firms
should have flexibility to set training requirements that reflect a firm's strategy andshould we engage with them?

requirements. However, further guidance around how firms should approach thevarious aspects of E, S and G with regards to training would be welcome.

Q15: Have you seen misrepresentation of ESG credentials among ESG-

professionals and, if so, what are the potential harms? Have you seen any
consistent

training

metricsthat

canhelp

comparefirms’

knowledge/capabilities? Please describe.
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