UK fund managers have now the option to use one of four sustainable investment labels introduced by the FCA as of 31 July, but uptake has been minimal.
According to Environmental Finance, only AEW has stepped forward, announcing its adoption of the “Impact” label for its UK Impact Fund. This fund, which was launched last year and comprises 38 UK real estate assets, has partnered with The Good Economy and law firm Eversheds Sutherland to align with FCA’s criteria.
Despite the availability of the labels, including ‘Sustainability Impact’, ‘Sustainability Focus’, ‘Sustainability Improvers’, and ‘Sustainability Mixed Goals’, there has been notable hesitation among other fund managers. Many are adopting a wait-and-see approach, gauging demand and the workload required to achieve these labels against the potential benefits.
Critics have cited the application process’s complexity and stringency, issues previously highlighted by Environmental Finance. Furthermore, fund managers are expected to ensure their fund names and marketing materials adhere to strict standards of fairness and clarity by 2 December, possibly prompting broader label adoption later in the year.
The FCA’s new initiative does not only cover labelled funds but also those making any ESG-related claims, such as being ‘green’ or ‘low carbon’. This broader approach aims to combat greenwashing and enhance transparency in fund marketing.
Several industry figures have commented on the scheme’s significance and potential impact. SIX Financial Information’s head of ESG product strategy and management, Martina Macpherson, emphasised the urgency for UK firms to adopt these labels promptly, highlighting the importance of transparency and the fight against greenwashing.
Meanwhile, Will Martindale from consultancy Canbury Insights mentioned the well-designed SDR regime but noted that the FCA must now aid in its implementation. Emil Stigsgaard Fuglsang, COO & co-founder at ESG data company Matter, pointed out the dual challenges smaller firms face in adopting these labels: developing sustainable investment frameworks and ensuring a significant alignment of their portfolios with the fund’s objectives.
Overall, while the FCA’s labelling initiative is a step towards more transparent and reliable ESG investing, the sector’s cautious initial response underscores the complexities involved in realising these regulatory ambitions.
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