FMSB Seeks to Shore Up Standards in Sustainability-Linked Products

With increasing concerns being voiced over the credibility and robustness of sustainability-linked products (SLPs) in financial markets, the Financial Markets Standards Board has published a Statement of Good Practice (SGP) on the products with the intent to strengthen governance and build confidence in them.

The SGP sets out globally applicable good practices to promote robust and consistent governance frameworks for these instruments, noting that their 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, FMSB observes, adding that 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. 

In response to the credibility and robustness concerns, the SGP outlines six  key guidelines 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 SGP and existing asset class specific guidance from ICMA, LMA, and ISDA.

The Statement 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. She says, “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 adds, “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.”

Finally, Vanessa Havard-Williams, chair of the Transition Finance Market Review, says, “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.”