Sustainability in Focus: What ESG Means for FSPs

As Environmental, Social and Governance (ESG) principles become increasingly important, financial service providers (FSPs) have an opportunity to shift their thinking. Rather than treating ESG as another administrative burden, early adopters can embed it into governance, advice and risk management – and in doing so, build trust, reduce risk and create long-term value.

FSPs are adjusting how they approach value, risk and responsibility as ESG principles become more mainstream. Although ESG reporting isn’t a formal requirement for all FSPs yet, it’s becoming a key part of how businesses are expected to operate. Starting the journey now can ease future compliance and support long-term sustainability.

What is ESG reporting?
At its core, ESG reporting is about transparency. It’s the process of disclosing how an organisation performs against key environmental, social and governance indicators in a structured, responsible way.

In the South African context, these indicators are shaped by local frameworks like the King V Report on Corporate Governance (2025), the JSE Sustainability Disclosure Guidance (2022) and even the Companies Act – especially for listed or public companies. These frameworks guide companies to report on areas such as:

• Carbon emissions and energy use
• Water consumption
• Labour practices and transformation
• Community engagement and B-BBEE targets
• Anti-corruption efforts
• Governance structures and oversight

While these reporting obligations typically apply to larger corporates, they also offer valuable guidance for smaller firms looking to future-proof their practices.

Why ESG matters for FSPs
Clients are increasingly seeking products and solutions that reflect their personal values. While younger investors and clients have helped drive this trend, interest in ESG extends well beyond that group. Across all demographics, clients are showing greater awareness of environmental and social impact. As this demand grows, FSPs are weaving ESG considerations into their advice processes – not just to meet client expectations, but also because ESG can strengthen long-term risk management and enhance portfolio resilience.

At the same time, regulators are paying closer attention. In 2023, the FSCA launched its Sustainable Finance Programme of Work, aimed at aligning the financial sector with global ESG standards and climate goals. This was followed by the release of the 2024 Sustainable Finance Consumer Risk Report and Roadmap, as well as the FSCA Sustainable Finance Update Report 2025.

The regulator has also consulted on possible climate-related disclosures and sustainability labelling standards to help prevent greenwashing, and further guidance is expected on how existing legislative requirements apply within a sustainable finance context.

Understanding the legal framework
Although there’s no single ESG law that applies to all FSPs, several existing legal and governance frameworks are relevant and can help guide FSPs who want to implement or improve ESG practices:

• The King V Report, released on 31 October 2025, is South Africa’s go-to corporate governance guide and encourages ESG transparency and integrated reporting as a matter of best practice.
• The JSE Disclosure Guidance (2022) provides listed companies with ESG reporting expectations and frameworks aligned with international standards.
• While the Climate Change Act, 22 of 2024, is not FSP-specific, its legislation reflects the national push towards sustainability.
• The FAIS Act and General Code of Conduct doesn’t name ESG directly but some of its sections are applicable:

- Section 2: Acting in the client’s best interest includes considering ESG-related factors where they could materially affect product performance.
- Section 3: Managing conflicts of interest, particularly if a recommended product claims ESG alignment but doesn’t live up to it.
- Section 7: Disclosure and transparency require accurate, non-misleading product representations. This includes avoiding greenwashing and ensuring ESG claims are factually substantiated.
- Section 8: When it comes to suitability of advice, if a client indicates ESG preferences, these must be factored into the advice process.

• The Treating Customers Fairly (TCF) Outcomes don’t explicitly reference ESG, but the principles closely align with it and support its implementation in the following ways:

- Outcome 1: Customers can be confident they are dealing with firms where TCF is central to the culture. Embedding ESG into a firm’s values and governance demonstrates a commitment to fairness, responsibility and ethical conduct.
- Outcome 2: Products and services are designed to meet the needs of identified customer groups. ESG factors help guide product design and advice to align with client values and long-term sustainability goals.
- Outcome 3: Customers are provided with clear information and are kept appropriately informed before, during and after the point of sale. Accurate ESG disclosures help prevent greenwashing and ensure that clients understand the characteristics, benefits and limitations of ESG-linked products.

• The Fit and Proper Requirements outline the standards of honesty, integrity, competence and operational ability expected of FSPs and their Representatives. In the ESG context, this means having the competence to understand and apply ESG considerations and to ensure any ESG claims are truthful, evidence-based and clearly communicated.

• Upcoming legislation like the Conduct of Financial Institutions (COFI) Act and regulatory reporting framework such as the Omni-Risk Return (Omni-RR) are likely to increase expectations around governance, risk and data – all areas that intersect with ESG.

How to get started: A practical guide for FSPs
Whether you’re a large financial institution or a small advice practice, integrating ESG doesn’t have to be overwhelming. The key is to take a structured, phased approach:

• Start with a gap analysis: Assess your current governance and reporting frameworks against ESG best practices – such as King V, the JSE’s guidance and FSCA expectations. This gives you a clear view of what you already have in place and where there are gaps.

• Update policies and governance structures: Based on the findings of the gap analysis:

- Update responsible investment and environmental impact policies
- Assign ESG accountability – either through a dedicated ESG committee or the board
- Ensure ESG becomes part of business strategy and risk management

• Begin collecting data: Start gathering measurable ESG data as early as possible. This includes metrics like your carbon footprint, B-BBEE performance and community engagement. This data will become increasingly important for regulatory reporting under COFI and the Omni-RR.

• Build internal capability: Provide staff with basic ESG training – both initial onboarding and ongoing training – so your team is equipped to understand and apply ESG in the due diligence of providers (services and products), advice, product discussions and operational decision-making.

• Communicate your progress: Once the foundations are in place, share your ESG commitments with clients. Transparency builds trust – and clearly stating what you are doing, why it matters and how you’re improving can differentiate your practice in a competitive market.

• For smaller FSPs: Focus on the fundamentals. Align first with what the FSCA expects, then scale over time. You don’t have to do everything at once – start where you are, build as you go and ask for help where needed.

Pitfalls to avoid
As you implement ESG, keep these common risks in mind:

• Greenwashing: Avoid overstating ESG credentials or using vague marketing language. All ESG claims should be backed by real data and clear documentation.
• Neglecting ESG in advice: If a client expresses ESG-related preferences, these must be considered in your product selection and advice process.
• Inadequate systems: Poorly designed ESG processes can lead to inaccurate disclosures, missed deadlines or future compliance risks – especially as reporting expectations evolve.

Why ESG is worth it
Like any new regulatory focus, ESG can feel like extra work at first. But by getting ahead of the curve, you can build resilience, protect your clients and unlock real value.

Early adopters will be better positioned to comply with future reporting obligations, provide advice that aligns with client values and engage confidently with regulators.

Most importantly, ESG isn’t just about compliance – it’s about building a practice that is responsible, forward-thinking and equipped for long-term success.