Fight against tax fraud laundering put to the test in next FATF visit


Fight against tax fraud laundering put to the test in next FATF visit


To the point

  • Many investment managers have made commitments to reach net zero greenhouse gas (GHG) emissions by 2050 amid growing stakeholder expectations that they will develop, disclose and execute credible transition plans.
  • Meeting these commitments will require investment managers to transform their entire organisation across their business strategy, products and services, investment decision-making, risk management, and operations.
  • Risk and Compliance functions, working with colleagues from across the organisation, have an important role in supporting the design and execution of the transition plan.
  • This article summarises the key themes discussed in the report: (i) credible net zero plans; (ii) governance, culture, and incentives; (iii) climate risk management; (iv) greenwashing; (v) treatment of customers; and (vi) thinking about ESG holistically.

This article is an abridged version of a report done by the EMEA Centre for Regulatory Strategy (assisted by colleagues in Risk Advisory), in conjunction with the Investment Association.

To mitigate the worst effects of climate change, action is needed now. The financial services industry has a crucial role to play, and investment managers are in a unique position to help channel investments to sustainable activities. Many investment managers have joined Governments and other corporates and financial services firms in making commitments to reach net zero GHG emissions by 2050.

Since COP26, regulatory expectations in relation to transition plans have evolved rapidly. To facilitate net zero commitments, regulators, supervisors, and wider stakeholders increasingly expect investment managers to develop, disclose and execute credible transition plans.

At the international level, the Task-force for Climate-related Financial Disclosures (TCFD) published guidance on voluntary transition plan disclosure in October 2021. The Glasgow Financial Alliance for Net Zero (GFANZ)and the International Sustainability Standards Board (ISSB)3 also issued consultations in 2022, which included recommendations and standards respectively for the disclosure of credible net zero plans.

In the UK, the largest investment managers and all listed investment managers will be encouraged under guidance contained in Financial Conduct Authority (FCA) rules4 aligned to the TCFD to disclose aspects of their transition plans in 2023, with the guidance applying to smaller investment managers above an exemption threshold the following year. The UK Government then intends to go further by requiring disclosure on transition plans under the forthcoming Sustainability Disclosure Requirements (SDR)5.

Investment managers with operations in other jurisdictions, such as the EU, and to a lesser extent the US, may face similar local rules in relation to the disclosure of transition plans.

Investment managers which have made net zero or low carbon commitments should develop their transition plans and consider their related disclosures. All other investment managers should consider starting this work now to meet FCA guidance, where applicable, or other international guidance and standards, and in advance of regulatory deadlines.

Meeting net zero commitments and stakeholder expectations means new responsibilities for staff at investment managers, including Boards, senior managers, and across the three lines of defence. As part of this, Risk and Compliance functions will have an important role to play, particularly in relation to mitigating the reputational, conduct, regulatory and liability risks that may arise from failing to deliver against transition plan targets, poor plans, or poor disclosures.

The Deloitte and Investment Association joint report sets out suggested actions Risk and Compliance functions can take across six key areas; this article summarises the salient points.

Credible net zero plans

The credibility and business implications of transition plans will face increasing stakeholder scrutiny - not just from supervisors and shareholders, but also from special interest groups and Non-Governmental Organisations (NGOs), which might bring class actions or otherwise seek to highlight poor ambitions, performance or disclosures.

Investment managers will need a Board-approved transition plan, with a detailed and resourced plan of actions. Commitments should be underpinned by targets, using robust, science-based, and standardised methodologies.
Investment managers will need to focus on reducing emissions across investee companies, derived from their assets under management (scope 3 emissions), while maintaining diversified portfolios and delivering risk-adjusted returns.

Actions for Risk and/or Compliance
  • Inform and advise relevant Committees and the wider firm on regulatory, supervisory and industry expectations and guidance on transition plans and their interaction with the broader sustainable finance regulatory landscape.
  • Engage actively with policymakers, regulators, standard-setters, and industry bodies.
  • Support the development of the transition plan and create policies, procedures, and controls to monitor adherence to the plan on an ongoing basis, escalating concerns pro-actively.
  • Consider reviewing the policies and controls put in place by the business on the use of carbon offsets.

Governance, culture, and incentives

Robust governance, with an aligned culture and incentives, will be essential in facilitating the execution of net zero plans. There should be a clear sense of purpose and alignment across the transition plan, climate strategy, business strategy, product range, risk appetite, risk management, culture, and incentives.

Firms’ governance structures and culture should be effective in cascading the transition strategy and plan horizontally and vertically throughout the firm, with responsibilities allocated clearly across the three lines of defence.

Actions for Risk and/or Compliance
  • Ensure that the CRO and CCO have a seat on relevant Committees, to give them a voice in developing the transition plan, and in providing second line oversight on adherence to the plan.
  • Be alert to the potential for a culture to develop where staff seek to ignore or circumvent transition plan actions, for example, where they do not support constraints placed on investment decision-making.
  • Provide the Board and relevant Committees with robust management information (MI) on delivery of net zero plans and performance against KPIs, metrics and targets.

Climate risk management

Investment managers are required to manage and/or disclose their risks which arise from climate change, for example, under the Financial Conduct Authority’s TCFD-aligned rules and the EU’s Sustainable Finance Disclosures Regulation (SFDR).

A credible transition plan will help investment managers with their work on climate risk management by reducing exposure to transition, liability, litigation, and reputational risks. Investment managers can also leverage their existing risk management frameworks to support the net zero transition.

Actions for Risk and/or Compliance
  • Support the business in identifying climate risks, including from the transition to a low-carbon economy, and in integrating climate risks into the risk management framework.
  • Ensure the strategy on climate risk management is aligned with the transition plan outcomes and is consistent with the risk appetite statement. For example, this might cover appetite to invest in certain markets, or concentration limits.
  • Support the business by providing oversight of climate-related scenario analysis and stress testing. Scenario analysis should be done both at the entity level and the fund level.
  • Support the business to develop policies to identify where actions to integrate climate considerations into investment decision-making result in a change to fund or mandate objectives and to make sure that the necessary internal and regulatory processes are followed.
  • Identify gaps in knowledge, skills and experience on climate change and related risks within Risk and Compliance and put in place a plan to address them, for example, through periodic training sessions.
  • Engage with relevant industry groups to understand best practices in relation to climate risk management.


Greenwashing is high on regulatory agendas, with regulators around the globe carrying out regulatory enforcement in this area. Greenwashing is often seen as a deliberate act of misconduct. However, when faced with incomplete ESG data and unfamiliar terminology, investment managers also need to address the risk of greenwashing inadvertently.

To support the net zero transition and reduce liability, litigation and reputational risks, investment managers should ensure accurate and compliant disclosures on net zero transition plans, firm-wide climate policies, emissions, and products.

Disclosures will need to be underpinned by a robust climate data strategy, data governance and target operating model.

Actions for Risk and/or Compliance
  • Support the development of a robust climate data strategy, data governance and target operating model to source varied, current and forward-looking data on climate risk and emissions across own operations and investee companies.
  • Ensure the business considers regulators’ concerns when using ESG ratings and data providers. Risk and/or Compliance can also assist with creating procedures in relation to the governance and oversight of data obtained from third parties.
  • Gain access to all data needed, both from internal and external data sources.
  • Consider conducting periodic reviews of whether the requirements in firm-wide sustainability data policies are being observed.
  • Ensure disclosures on the transition plan, firm-wide policies, and products are consistent and meet regulatory requirements and supervisory expectations.
  • Leverage existing control frameworks to ensure that there are processes, policies and controls in place to monitor funds which promote or target climate characteristics across the product lifecycle.

Treatment of customers

Investment managers have a pivotal role in supporting their institutional clients and retail customers with their climate ambitions and/or preferences.

Investment managers must ensure that they communicate clearly with their customers about how transitioning to net zero might affect the value of their products. They will also need to monitor complaints, particularly in relation to greenwashing, and have a clear escalation process.

Actions for Risk and/or Compliance
  • Ensure customer and client communications are clear, fair and not misleading.
  • Ensure customers are treated fairly as investment managers’ product offering changes and that any material changes to the investment strategy or to management fees are disclosed.
  • Assess how changes in product affordability and/or availability might affect vulnerable customers.
  • Where required under the EU Delegated Acts amending MiFID II and IDD ensure that ESG considerations are incorporated into product governance and, where investment managers have in-house advisers, ensure that suitability reports capture adequately clients’ sustainability preferences and the reasons why certain products have been matched to the preferences.
  • Ensure the distribution team and financial advisers in the value chain receive adequate training on funds which promote or target climate characteristics.
  • Ensure that, where they have responsibility for complaints handling, Risk and/or Compliance are trained in relation to funds which promote or target climate characteristics. This will require Risk and/or Compliance to have a good understanding of sustainable investing, interpretation of climate data and non-financial performance metrics so that they are able to determine whether a fund has performed as expected and the reason for this.

Thinking about ESG holistically

As there are more funds which promote or target sustainable or ESG characteristics than solely climate characteristics and many regulatory requirements or supervisory expectations include broader environmental or ESG considerations in their scope, investment managers will need to think about ESG holistically.

Actions for Risk and/or Compliance
  • Consider how to integrate nature considerations into the risk management framework, product range, and investment decision-making processes.
  • Ensure that fund documentation and client disclosures are clear on how they will treat trade-offs between “E”, “S” and “G”.


1 TCFD, Guidance on Metrics, Targets, and Transition Plans, October 2021.

2 GFANZ, Financial Institution Net-zero Transition Plans, June 2022.

3 IFRS, ISSB delivers proposals that create comprehensive global baseline of sustainability disclosures, 31 March 2022.

4 FCA, Enhancing climate-related disclosures by asset managers, life insurers and FCA-regulated pension providers, December 2021.

5 FCA, Sustainability Disclosure Requirements (SDR) and investment labels, November 2021.

6 IPCC, Climate Change 2022: Impacts, Adaptation and Vulnerability, February 2022.


Meeting net zero commitments will require a transition to a fundamentally different and more sustainable economy. With the recent findings of the Intergovernmental Panel on Climate Change that we have a “brief and rapidly closing window to secure a liveable future”6, the impetus for investment managers, as stewards of investor capital, to move from ambition to action is more urgent than ever before.

Investment managers will need to transform their entire organisation across their business strategy, products and services, investment decision-making, risk management, and operations.
Alongside the Board, senior managers and those in the business and internal audit, Risk and Compliance functions can play an important role in supporting their firm’s net zero transition and ensuring their firm is positioned for the future in terms of competitiveness and resilience.

Please see our report for further details.


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