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Explore our FSR Outlook 2023

As awareness of environmental, social and human rights issues grow, we explore how firms will need to respond to a changing ethical landscape

In a nutshell:

  • Social change and just transition are fundamental considerations for global ESG projects, and are receiving increased focus alongside environmental issues.
  • Requirements for measuring and reporting sustainability have concentrated on environmental risks, but firms should expect an increase in co-ordinated social impact metrics.
  • Regulatory initiatives seeking to reflect a changing society and improve standards may not immediately be thought of as ESG projects but require fair consideration.
  • Firms will need to be alive to areas of focus which spring to the fore in response to changing social dynamics. 


In the year since COP26, global financial services have seen an understandable concentration on climate-related sustainability initiatives.  However, community, political and human rights issues are increasingly generating risks which require financial institutions to view them through a new lens.

Recent dynamic global social change is unlikely to abate, and will continue to push an emphasis on social transition and social sustainability to the fore.  Most ESG initiatives have an innate social element, and are being supplemented by various regulatory initiatives of which firms globally should be aware.

Reporting on Social Risks

The progress in definable reporting metrics for climate-related factors has, to date, largely not been matched in relation to social impact.  Firms should expect to see ESG-driven obligations increasingly focussing on social elements. 

In the UK, the Financial Conduct Authority (FCA) recently published a paper providing detail on the new labelling and disclosure requirements for sustainable investment products (read more about the environmental Sustainability Disclosure Requirements here).  Each proposal lists social aims as an equal focus to environmental ones – and worked examples consider various "long-term social themes".  

Although consensus suggests the EU's proposed Social Taxonomy has been put on the back-burner, we expect the Corporate Sustainability Reporting Directive (CSRD) to come into application on a phased-in basis from 2024-2026; it will support the existing Sustainable Finance Disclosure Regulation (SFDR) by extending non-financial reporting requirements and augmenting their scope to better capture social elements.  To this end, the European Financial Reporting Advisory Group has begun work on accompanying sustainability reporting standards, including on various work-related rights.  Similarly, the upcoming Corporate Sustainability Due Diligence Directive will require various companies to install due diligence procedures designed to capture human rights practices, in addition to environmental elements.

The Stock Exchange of Hong Kong has recently recognised the importance of social elements when enhancing its ESG disclosure requirements. This included upgrading the disclosure obligation relating to all social key performance indicators for listed company ESG reports.  More recently, the Securities and Futures Commission (SFC)'s revised guidance to managers of ESG funds sets out, among other things, the SFC's expectations on naming funds, disclosures in offering documents, and periodic reporting on how funds have attained their ESG focus. In light of the broad scope of ESG covered by such guidance, the social impact of funds' investments should not be overlooked.

Similarly, listed issuers in Singapore are required to publish sustainability reports on an annual basis. In particular, the SGX Mainboard Rules state the sustainability report must describe the issuer's sustainability practices, including with reference to material social factors. The SGX also recommends 27 core ESG metrics for issuers to use as a starting point for sustainability reporting. 12 of these relate to social topics such as gender and age-based diversity, employment, and occupational health & safety.

Focussed Regulatory Initiatives

Regulators are also taking steps to drive more targeted positive social outcomes, unconnected to any wider environmental policy framework.  For example: 

  • In the UK, financial services regulators have demonstrated a stronger focus on accelerating the pace of meaningful change in diversity and inclusion (D&I).  Firms involved in the FCA's recent supervisory exercise and pilot data survey have already received feedback and the findings focus on data, D&I strategies and inclusive cultures.  The consultation paper following up on the 2021 joint discussion paper will be published in 2023. Separately, in April the FCA published final rules on D&I in executive management; FCA enforcement action on non-financial misconduct has left firms under no doubt they need to consider the wider conduct of staff, to drive out certain behaviours.
  • Recent amendments to the Stock Exchange of Hong Kong's Listing Rules prohibit single gender boards in listing applicants (with transition period for listed companies) and introduce other requirements such as disclosure of board and workforce gender information and targets.
  • In Singapore, the SGX Mainboard Listing Rules now require issuers to maintain a board diversity policy addressing gender, skills and experience, amongst other factors, with disclosures obligated in companies' annual reports.
  • Australian regulators have also honed in on disclosure-related issues, especially where marketing focuses on ESG-related outcomes.  The Australian Securities and Investments Commission (ASIC) has noted as part of its enforcement priorities for 2023 that it will monitor and take action in circumstances of misleading conduct in relation to sustainable finance including greenwashing (available here). ASIC in particular has noted the prohibitions against misleading or deceptive conduct and representations, as well as disclosure obligations, and has recently taken action against an investment manager for representations that ASIC alleges were misleading in relation to an investment product that was said to exclude securities “involved in the production, manufacturing, or significant sales of tobacco” (see ASIC media release).

Managing Social Risks

More broadly, minimising societal harms is intrinsic to regulatory approaches, and socially concerned initiatives can be difficult to differentiate from programmes designed to prevent consumer harm more broadly.  

Social policies are at the heart of conduct strategies.  In the UK, the Consumer Duty is transforming the landscape for financial services providers with any retail nexus, whilst in Australia, ASIC recently announced its five ‘enduring priorities’, including misconduct impacting First Nations people. 

Other topics have been thrown into sharper relief by recent social turmoil. Covid-19, the war in Ukraine, energy crises and soaring inflation all threaten consumers and social stability, and inspire regulatory focus.  Affordability is in the spotlight, with the UK, EU and Australia looking likely to regulate Buy-Now-Pay-Later products, and Hong Kong and Singapore regulators expressing concern and providing guidance regarding such products. 

Managing and protecting customer data has also become a primary focus in Australia, following several high-profile data-hacking incidents, including the Optus and Medibank hacks in late 2022, both of which resulted in the loss of millions of customers’ personal and confidential health information.  

Meanwhile, the increasing democratisation and digitisation of financial products has raised concerns of social harms.  Our articles in this publication on digitisation and scams offer a deeper insight into how regulators are looking to limit these harms.

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Mark Smyth

Partner, Sydney

Mark Smyth
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Marina Reason

Partner, London

Marina Reason
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Charlotte Henry

Partner, Sydney

Charlotte Henry

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