Risk and compliance functions have an important role in net zero transition

Risk and compliance functions at investment managers have an important role in supporting their firm in the transition to net zero, according to a new report by the Investment Association (IA) and Deloitte. These functions are well positioned to help prepare firms for the future and to mitigate reputational, conduct, regulatory and liability risks that may arise from not being able to meet transition plan targets.

The report, ‘How Risk and Compliance functions can support the net zero transition: Investment managers and net zero’, considers how investment managers’ risk and compliance functions can help facilitate the net zero transition across six themes: credible net zero plans; governance, culture and incentives; climate risk management; greenwashing; treatment of customers; and thinking about ESG holistically.

It recommends that a collaborative approach within an organisation will improve the ability of investment managers to harness opportunities and minimise risks associated with the transition to a more sustainable economy.

The report suggests that risk and/or compliance should:

  • Advise the wider firm on regulations, expectations and guidance on transition plans and 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 proactively;
  • Identify and integrate climate risks into the risk management framework and ensure the strategy on climate risk management is aligned with the transition plan;
  • 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; and
  • Ensure that climate considerations are incorporated into product governance, where required.

Paul Scaping, Public Policy Specialist at the Investment Association said:

“Investment managers have an important role to play in reaching a net zero economy and many firms have joined governments and other corporates in making commitments to reach net zero. Like all other functions, it is important that risk and compliance teams are equipped to support these commitments, hit climate goals and meet client expectations. Physical and transition risks linked to climate change will be significant, and regulatory attention is intensifying. This report will help leadership assess if their risk and compliance teams are focused and properly resourced for the net zero challenge.”

David Strachan, Head of EMEA Centre for Regulatory Strategy, Deloitte added:

“The transition to net zero poses an unprecedented and very real set of challenges. Since COP26, regulatory and industry expectations in relation to transition plans have been evolving rapidly, forming a complex landscape which investment managers, and their risk and compliance functions, will need to navigate. Our joint report with the Investment Association highlights how these functions are well positioned to help prepare their firms for the future and mitigate reputational, conduct, regulatory and liability risks that can arise from failing to meet transition targets.”

Notes to Editors:

The full report, How Risk and Compliance functions can support the net zero transition: Investment managers and net zero, can be found here.

For further information, please contact:

Katie Martin, Head of Communications, the Investment Association: [email protected]

T: +44 (0)20 7269 4655

Arianna Schardt, Communications Executive, the Investment Association: [email protected]  

T: +44 7548841289

IA Press Office: [email protected]

Will Black, Public Relations Manager, Deloitte: [email protected]

T: +44 (0)20 7007 8242

About the Investment Association (IA):

  • The IA champions UK investment management, supporting British savers, investors and businesses. Our 270 members manage £9.4 trillion of assets and the investment management industry supports 114,000 jobs across the UK.
  • Our mission is to make investment better. Better for clients, so they achieve their financial goals. Better for companies, so they get the capital they need to grow. And better for the economy, so everyone prospers.
  • Our purpose is to ensure investment managers are in the best possible position to:
    • Build people’s resilience to financial adversity
    • Help people achieve their financial aspirations
    • Enable people to maintain a decent standard of living as they grow older
    • Contribute to economic growth through the efficient allocation of capital.
  • The money our members manage is in a wide variety of investment vehicles including authorised investment funds, pension funds and stocks and shares ISAs.
  • The UK is the second largest investment management centre in the world, after the US and manages 37% of all assets managed in Europe.