ESG Funds: FCA Calls for Further Action
A recent assessment by the FCA reveals that while the majority of Authorised Fund Managers (AFMs) have made strides to align with the FCA’s expectations regarding the structure, delivery, and transparency of their ESG and sustainable funds, there is room for further enhancement.
This review precedes the finalisation of the FCA's rules and guidance on Sustainability Disclosure Requirements (SDR) and the investment labels regime. The FCA is urging firms to address both positive and negative practices highlighted in the report to effectively fulfill the requirements of SDR and the Consumer Duty.
Within the FCA's evaluation, instances of commendable practices surfaced, such as the development and application of fitting ESG and sustainability scoring systems and benchmarks. The report also spotlighted positive instances where AFMs diligently conducted due diligence on third-party data providers.
Despite notable progress, the FCA notes that several firms still fall short of meeting its expectations, particularly concerning the disclosure and clarity of information provided to retail investors and consumers.
The review exposed instances of suboptimal practices, including inconsistencies between products and their stated ESG and sustainability objectives, discrepancies in fund holdings, and insufficient explanation of key ESG and sustainability information in disclosures.
Moreover, the FCA observed that the stewardship approaches of AFMs often failed to align with its expectations. The lack of clarity in defining the goals of stewardship activities, their alignment with fund objectives, and the demonstration of progress made against those goals posed challenges.
Camille Blackburn, Director of Wholesale Buy-Side, emphasised the importance of maintaining the UK's world-leading asset management sector. She highlighted upcoming regulatory changes, particularly in labelling rules, aiming to empower retail investors and consumers with a clear understanding of their investments.
Blackburn stressed the significance of incorporating identified guiding principles and good practices to facilitate compliance with proposed requirements under SDR, Investment Labels Rules, and Consumer Duty obligations.
The FCA, committed to upholding market integrity, will persist in monitoring firms and their investment products to ensure alignment with regulatory expectations.
To view and compare company ESG Ratings and Sustainability Reports, visit our Company ESG Profiles page.