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The SFC’s new climate-related requirements: action is required

Updated: Dec 19, 2022

Article by Fiona Donnelly

While it has been brewing for some time, the Securities and Futures Commission’s (SFC’s) revised Fund Manager’s Code of Conduct (the Code) is now effective. How can in-scope fund managers (FMs) ensure they meet the requirements?



The Securities and Futures Commission’s revised Fund Manager’s Code of Conduct was issued in August 2022, one year after the release of the Circular to licensed corporations Management and disclosure of climate-related risks by fund managers (the Circular) advising of the conclusions from the consultation exercise.

In essence, the revised Code requires Fund Managers managing collective investment schemes (CIS) to take climate-related risks into consideration in their investment and risk management processes and make appropriate disclosures. The Code applies to all CIS, regardless of them being labelled and sold as “ESG”, “climate” or similar.


We know directly from our conversations with the SFC, that they want to see evidence that FMs have complied with the new requirements and will incorporate such enquiries into their forthcoming reviews.

Why should non-ESG FMs give this due consideration

Yes, the Code is a new compliance box that needs to be ticked but we encourage affected FMs to see it as so much more.

Never before have we known so much about what future climate change could look like; and the summer of 2022 has provided various tough-to-witness examples and insights into what may be lying ahead.

We are in this predicament largely because of human activities: in burning fossil fuels and changing land use, we are upsetting the balance of the planet resulting in knock-on impacts to the sea level, global temperature, the frequency and ferocity of extreme weather and much more. The following diagram provides a highly simplified summary of some of the chain reactions:

Incomplete and simplified linear presentation for illustrative purposes only.

The Impact column is some of the true stories of Summer 2022 from around the world.

So called ESG investors include those FMs who are pursuing a financial return while also seeking to make a difference to the source of climate-related (and other) problems. They operate at the green boxes in the diagram, selling “ESG funds” (and similar) and making corresponding investment choices like investing in renewable energy projects, sustainability-linked loans, issuers with plans to decarbonise their operations, etc.

This is a particular investment approach and style, and while those concerned about the future of the planet would like more investors to move this way (and fast), as at today, not all FMs are in this category – and the SFC’s revised Code is not trying to change that.

Instead, consider the new requirements in the Code as a tap on the shoulder. Every operator on the planet, whether corporate, individual, ESG/non-ESG fund manager, needs to be concerned about the topics and their interconnections in blue in the above diagram. The impacts of climate change are far reaching and wide ranging, and affect different businesses in different ways in different locations, so deserve detailed consideration in regular risk analyses.

We are now clear that projecting the climate’s past into the future will not be sufficient. Our knowledge on climate is a developing area – comprising often new data and deepening understanding on the related risks and opportunities – that deserves careful review.

The dual genius/curse of the revised Code is that it is written with several terms eg. relevant, material, adequate [disclosure], that are open to interpretation to support the Code's application in various contexts.

While some FMs have indicated their decision that a lot of the Code does not apply to them, the Code requires FMs (in paragraph 6.2A) to explain how they have reached that outcome. Paragraph 14 of the Circular sets out that “Fund Manager should disclose these exceptions when it discloses how it incorporates climate-related risks into its investment and risk management processes. It should also maintain appropriate records which explain why climate-related risks are irrelevant”.

So action is required. Our recommendation to FMs is to go through a climate review process comprehensively and authentically and in doing so potentially improve your climate risk/opportunity governance, and thereby fully address your fiduciary duties.

As a first step, we suggest FMs reflect on 4 questions:

  • Do you know how the various aspects comprising climate are affecting and/or could affect significant assets and operations in your portfolio?

  • Are you aware of your ownership in ‘at climate risk’ businesses, for example those that are heavy emitters of CO2 and at risk of becoming heavily taxed, the target of activists or even illegal?

  • Are you tracking how market policies, trends and technologies are changing in the locations of your significant investments?

  • Is the person/team tasked with tracking climate developments, climate savvy? And are they following the optimal sources of new climate intelligence, and assessing it appropriately?

The answers to these questions will provide a useful indication to an FM of how appropriately they are assessing climate risk which in turn will help shape the appropriate interpretation and application of the Code.

Contact us if you need help ensuring compliance with the revised Code (including climate governance, risk/investment processes and disclosures), advice on responding to DDQs and more.

A version of this article was first published by FAS Limited in a newsletter issued to clients.

This article is for information only. Obtain direct and tailored advice before applying anything contained in this material to a specific scenario. For more information, contact Red Links. External links are included for readers’ convenience. The inclusion of these sources is neither an endorsement of that provider nor intended to provide readers with any assurance as to the completeness or accuracy of the particular material linked. Thumbnail Photo by Peter Burdon


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