The FCA has decided to hold off introducing new rules on sustainability-related governance and the transition to net zero for regulated firms following a consultation with the industry.

In response to a widespread FCA consultation launched last year, the regulator said it would instead “continue to promote” sustainability considerations through other initiatives instead of introducing new regulations.

The regulator had asked for views on sustainability-related governance, incentives and competence in regulated firms in its DP23/1 discussion paper published in 2023.

The regulator has introduced several new rules related to sustainability since first publishing the discussion paper, including its SDR and labelling rules on 28 November 2023 and its anti-greenwashing rules on 31 May 2024.

The FCA said in response to the discussion paper that many respondents had said these new sustainability rules had had a positive impact.

It said: “It is encouraging that many respondents to DP23/1 acknowledged the importance of these measures.

“We recognise the importance of allowing time for new measures to be implemented before introducing further rules in these areas. And for the DP’s themes not captured by these measures, we recognise that current practices are still developing.”

The regulator added that it does not rule out more sustainability-related rules in the future.

It said: “We will continue to monitor developments in the market to make sure it is functioning well.

“In keeping with our regulatory objectives, we will continue to focus on areas where potential harm to consumers, market integrity or competition is greatest, and where we think regulatory action can make a positive difference.”

Last month the regulator issued a statement clarifying its position on defence companies following a letter from MPs asking it to clarify its ESG rules to unlock additional investment in defence firms.

More than 100 MPs signed an open letter to banks and fund managers, calling on them to rethink they way they approach ESG due to worries they were excluding, “all defence investment as unethical.”

The FCA clarified that defence companies should not be treated differently to firms in other sectors when it comes to its sustainability regulations.

Financial Planning Today Analysis: The FCA is ruling out new regulations around sustainability and achieving net zero for the time being. The path to net zero is just one of several areas where the regulator has paused potential new regulations in recent months in a sign that more caution on new rules is the strategy. In this latest policy statement, the regulator said it will instead focus on areas where potential harm to consumers is the greatest. This is likely to be welcomed by many in the Financial Planning profession who are already struggling under the burden of increasing regulation. For the time being it's 'as you were' on sustainability governance.