FCA Sustainable Investment Labels and Anti Greenwashing Rules

The Financial Conduct Authority (FCA) has released its final Sustainable Disclosure Rules (SDR) for investment funds as well as anti-greenwashing rules for fund managers.

Sustainable Fund Labels

In order to help both financial advisers and investors to better understand the the differences of eash sustainably invested fund as we move to climate change with envrionmentally friendly, socially responsible and governance (ESG) investing across all sectors.  Sustainable funds will have 1 of 4 labels:

• Sustainability Focus:  minimum 70% invested in envrionmentally friendly and socially responsible assets.
• Sustainability Improvers:  funds that may not be investing that much so far in envrionmentally friendly and socially responsible assets but are moving towards this (sometime known ‘tilt’ funds).
• Sustainability Impact:  invests in areas affecting people or the planet to have a direct, positive and measurable impact on the envrionment or socially issues using predefined criteria.
• Sustainability Mixed Goals:  invests in a wide and mixed ‘bag’ of areas that have impact on envrionmentally friendly, socially responsible and governance (ESG) issues.

Anti-Greenwashing

Many ‘ESG’ or green funds have suffered falls in value and some by as much as 50% due to reduced investor confidence in them as well as excess demand over supply has led to some companies claiming to be ‘greener’ that what they are.

A consultation paper has been published and will close on 26 January 2024 to require fund managers to be clear, fair and not mis-leadiing with regard to their fund’s ‘green’ attributes.  New rules to protect both the consumer and adviser will be in force from 21^st May 2024.  The rules will cover envronmentally friendly and socially responsible features including

• Claims and statements.
• Images in marketing.
• Information in all media.
• Fund policies.
• Fund strategies.
• Fund targets and objectives.

Comment

All of the above can only make the ESG market more balanced and open to consumers as well as trying to kill off greenwashing.  The challenge now is to educate the market, advisers and consumers and get us all used to these new labels.