Regulator Gets Tough on Fund Managers Green Criteria Claims

Published / Last Updated on 19/07/2021

The Financial Conduct Authority has issued a ‘Dear CEO letter’ to fund managers across the UK outlining shortfalls that many investment firms and funds managers about their ESG (Ethical, Social Responsible and Corporate Governance) credentials.  The FCA suggests that many firms are falling short and claiming green credentials without real substantiation.

In the Dear CEO letter, the FCA has oulined three guiding principles that should be following as a standard for all.  We offer a summary of the same:

Overarching principle: Consistency

A fund’s ESG/sustainability focus should be reflected consistently in its design, delivery and disclosure. A fund’s focus on ESG/sustainability should be reflected consistently in its name, stated objectives, its documented investment policy and strategy, and its holdings.

Principle 1. The design of responsible or sustainable investment funds and disclosure of key design elements in fund documentation

References to ESG(or related terms) in a fund’s name, financial promotions or fund documentation should fairly reflect the materiality of ESG/sustainability considerations to the objectives and/or investment policy and strategy of the fund.

Principle 2. The delivery of ESG investment funds and ongoing monitoring of holdings

The resources (including skills, experience, technology, research, data and analytical tools) that a firm applies in pursuit of a fund’s stated ESG objectives should be appropriate. The way that a fund’s ESG investment strategy is implemented, and the profile of its holdings, should be consistent with its disclosed objectives on an ongoing basis.

Principle 3. Pre-contractual and ongoing periodic disclosures on responsible or sustainable investment funds should be easily available to consumers and contain information that helps them make investment decisions

ESG/sustainability-related information in a key investor information document should be easily available and clear, succinct and comprehensible, avoiding the use of jargon and technical terms when everyday words can be used instead.  Funds should disclose information to enable consumers to make an informed judgement about the merits of investing in a fund.  Periodic fund disclosures should include evaluation against stated ESG/sustainability characteristics, themes or outcomes, as well as evidence of actions taken in pursuit of the fund’s stated aims.


The FCA is to be applauded for their move.  That said, the shortage is real ‘ESG’ firms, research projects and activities to invest in is creating a bubble.  ESG will eventually become mainstream but demand outstrips supply at present. 

More on the guiding principles in the Dear CEO Letter

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