Financial Markets Standards Board (“FMSB”) has today published a Statement of Good Practice (“SoGP”) on the Governance of sustainability-linked products (“SLPs”), setting out globally applicable good practices to promote robust and consistent governance frameworks for these instruments.
SLPs are products whose financial and/or structural characteristics vary depending on whether the user achieves specific sustainability or ESG objectives. These objectives are measured through pre-defined key performance indicators and assessed against sustainability performance targets. Unlike use-of-proceeds instruments, SLPs can be used for general corporate purposes, providing a flexible alternative for many users to access the sustainable finance market.
The initial growth of SLP issuances has been hampered by increasing concerns over the credibility and robustness of these instruments. In response, the SoGP outlines six Statements of Good Practice intended to help strengthen and standardise governance around SLPs. It is accompanied by a Risk Register that identifies key risks associated with SLPs and offers mitigants aligned with the SoGP and existing asset class specific guidance from ICMA, LMA, and ISDA.
The SoGP was developed by a Working Group of experts from across FMSB Members, led by Caroline Haas, Head of Sustainable Finance Advisory at NatWest Commercial and Institutional and Chair of FMSB’s ESG Committee.
Caroline Haas, Chair of FMSB’s ESG Committee said:
“Establishing industry-led good practice around the governance of SLPs is a key step to improving the quality and integrity of these products, increasing market confidence and investor trust while mitigating greenwashing risks. Ultimately this will support the development of a deeper, more robust sustainability-linked product market that can support the acceleration of transition finance to aid de-carbonisation of the real economy. I would like to thank all the Members of the FMSB SLP Working Group for their efforts creating this important global guidance.”
Myles McGuinness, FMSB CEO said:
“SLPs have the potential to play a greater role in transition finance but have been hampered by greenwashing and credibility concerns. This guidance is intended to help make governance processes with regard to SLPs stronger and more consistent around the world, ultimately increasing market confidence and appetite for these products.”
Vanessa Havard-Williams, Chair of the Transition Finance Market Review said:
“The energy transition offers a major opportunity to deliver sustainable growth. The Transition Finance Market Review recognised that sustainability linked products have potential to play a useful role in the transition finance toolkit if improvements continued to be made to their design and disclosure to enhance impact and credibility. I welcome this guidance intended to strengthen the governance of sustainability-linked products, which can ultimately help support the development of a deeper and more robust sustainability-linked product market.”
About FMSB:
- Financial Markets Standards Board (FMSB) is an industry-led, member-funded global standards body for the wholesale financial markets.
- Created out of the Fair and Effective Markets Review (FEMR) in 2015, FMSB brings together its Members from banks, investment institutions, infrastructure and information providers, corporates, pension funds and interdealer brokers, to develop Standards, Statements of Good Practice and Spotlight Reviews that raise standards of behaviour, competence and awareness – to promote the fairness and effectiveness of global wholesale financial markets.
- As well as standard setting, subject matter experts from member firms debate issues in working groups and are able to benchmark their approaches against industry peers, thus helping to lift standards of conduct.
- FMSB’s full membership list is here
For more information / media inquiries:
Laura Conaghan
+44 (0)7929 72669
Laura.conaghan@fmsb.com