28 November 2023
If you are covering the launch of the FCA’s Sustainability Disclosure Requirements policy statement, please find below a comment from Gemma Woodward, head of responsible investment at Quilter Cheviot:
“The Sustainability Disclosure Requirements is a landmark piece of regulation from the FCA and has the potential to alter the sustainable investment landscape here in the UK. It has clearly been a collaborative process with the industry to get to this point, with the whole UK investing landscape now being considered, not just single strategy funds.
“The introduction of an additional label, ‘Sustainability Mixed Goals’, to go along with the original three proposed is an important one. This is vital for those funds investing across the spectrum of assets and allows the FCA to bring fund of funds into scope too. This is a positive for investors as it opens up a wider range of options available to them if they do wish to invest in this way.
“There are areas that will take some additional navigating and clarification as the industry evolves, especially the rules around marketing and what words you are allowed to use to describe non labelled products and funds. It would be a shame if this results in green-hushing – the concept of underplaying the responsible or sustainable investment credentials – a phenomenon we already see in some US based managers.
“That said, it is clear that the FCA wants to set a high standard with this regulation. For some, the 70% threshold of assets invested in line with the sustainability objective was seen as too high, but if we are to avoid any greenwashing accusations it has to be a high hurdle to clear. The FCA sees the remaining 30% as more than enough headroom to provide liquidity and portfolio management services while remaining aligned to the label. This will need monitoring going forward to allow tweaks should 70% appear too restrictive, especially for those in more defensive strategies where cash and bonds can be harder to classify as sustainable.
“However, while this sets out the regulatory stall for the UK, globally sustainable investing regulation remains a fractured industry, with each country implementing their own codes. While this is to be expected, the burden this is placing on asset managers is vast and without global alignment on regulation it is likely the status quo will continue. Furthermore, with overseas funds marketed in the UK not in scope, there is a potential that the playing field is not levelled for some time.
“While the vast majority of this regulation applies to asset managers and fund providers, advisers cannot simply ignore its impact. It is pleasing to see the FCA has considered the communication aspects of these labels for advisers to clients, and that it intends to work collaboratively with the adviser community to build on SDR in the distribution chain. But while the advice process remains as it is today, it won’t be long until changes around sustainable investment will be required. Ignoring it now is simply kicking the can down the road. SDR is a good starting point for advisers to build on and be proactive in an area that the FCA is clearly watching closely.”
