A review by the Financial Conduct Authority (FCA) has found that
while most Authorised Fund Managers (AFMs) have made efforts to
comply with the FCA’s expectations on the design, delivery, and
disclosure of their ESG and sustainable funds, further
improvement is needed.
The FCA is publishing this review ahead of its final rules and
guidance on Sustainability Disclosure Requirements (SDR) and
investment labels regime.
The FCA expects firms to address the good and poor practices
outlined in the report to meet the requirements of SDR and the
Consumer Duty.
The FCA review found evidence of good practice, such as the
development and use of appropriate ESG and sustainability scoring
systems and benchmarks. The review also highlighted good practice
where AFMs conducted thorough due diligence on third party data
providers.
While progress has been made, the FCA has found that many firms
still have further to go to meet its expectations, particularly
around the disclosure and clarity of information being given to
retail investors and consumers. The FCA has found other examples
of poor practice including:
- Products were inconsistently aligned with their ESG and
sustainability goals even if they referenced them in their
name.
- In some instances, fund holdings appeared inconsistent with a
fund’s ESG or sustainability objectives, and some AFMs weren’t
able to explain how these investments fit with their
goals.
- Key ESG and sustainability information was often not
explained, put into context or included in disclosures, meaning
relevant information was not immediately or clearly accessible to
investors.
- The design of AFMs’ stewardship approaches did not meet the
FCA’s expectations. It was often difficult to identify the exact
aim of the stewardship activities, how the activities were
aligned to fund objectives, and examples of the progress they
made against those aims.
Camille Blackburn, Director of Wholesale Buy-Side
said:
“The UK’s asset management sector is world leading and we want to
keep it that way. The changes we are making to the regulatory
regime through upcoming rules on labelling will help retail
investors and consumers understand and be confident in knowing
exactly what they are investing in.
“Embedding the Guiding Principles and the good practice we have
identified in our review will help firms to comply with proposed
new requirements under the SDR and investment labels rules,
alongside their Consumer Duty obligations.
“We expect boards to take the lead in monitoring and ensuring
firms make any changes required to further enhance sustainability
disclosures and practices.”
The FCA will continue to monitor the market to make sure firms
and the investment products they provide to the market meet the
regulator’s expectations.
Editor’s Note:
- In July 2021, we issued a Dear Chair letter to
authorised fund managers. This set out a series of guiding
principles for the design, delivery, and disclosure of
sustainable investment products.
- Proposed Sustainability Disclosure Requirements (SDR) and
investment labels rules and guidance (CP22/20) will be of
relevance to AFMs.
- Our proposals support the delivery of the Government’s
ambition for Sustainability Disclosure Requirements and labels,
set out in the Roadmap to Sustainable
Investing published in October 2021.
