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Fidelity ponders compensation after ESG glitch

Fidelity ponders compensation after ESG glitch

Advisers who used Fidelity’s intermediary platform to filter ethical funds for their clients could have been misled by a botched sorting system, it has emerged.

A data error in the filtering system, which is sourced from a third party, caused the platform to brand 49 of Fidelity’s own funds as ‘sustainable and responsible investing’ when only one of the funds picked up in the list, the FT Sustainable Water and Waste fund, actually fell under this category.

The issue, first reported by the Sunday Times, caused problems for both the direct to consumer platform and the Fundsnetwork adviser system.

Fidelity is now investigating the incident and has not ruled out compensating clients if appropriate.

The issue came to light when analysis by wealth manager SCM Direct, which published a report on greenwashing today (November 4), found widespread misclassification of ethical or ESG (environmental, social and governance) funds within the industry.

According to the report, funds such as the Fidelity European Dynamic Growth, which holds 6.2 per cent in tobacco companies such as BATs, Imperial Brands and Swedish Match, appeared through the filter under the sustainable label.

Fidelity has since removed the sustainable filtering system from its platform while it conducts a full investigation into the failings.

Stuart Welch, head of personal investing at Fidelity International, said: “We’re always trying to find new ways to help customers find the investments they want. 

“In this case Fidelity’s platform takes a feed from a third party data provider who categorise the funds with a SRI filter.”

Mr Welch said Fidelity took the accuracy of its platform data “extremely seriously”, adding it was reviewing the criteria of the feed and had immediately removed the filter from the platform pending the investigation.

Paul Stocks, director at Dobson and Hodge, said he felt advisers were having to put up with “ever more questionable information” and that greater accountability needed to be placed on those managing client money to ensure the solutions were in line with what was expected.

Meanwhile Tim Morris, IFA at Russell & Co Financial Advisers, said: “If my clients were impacted, I would take remedial action to correct this as soon as possible. Due to the time and inconvenience, I would expect compensating.”

He added he would expect the Fundsnetwork to make a gesture of goodwill to his client, too, as this would make it clear who was responsible and help retain trust in the industry.

A spokesperson from Fidelity said the firm would look into potential compensation during the investigation and take appropriate action where necessary.

Tom Sparke, investment manager at GDIM, agreed the situation could cause a drop in confidence, calling the saga an “unfortunate error”.

SCM’s report also found there was low correlation between ESG scores for companies in the investment space.

For example, Tesla is ranked by MSCI at the top of the industry while FTSE brands it as the worst carmaker globally on ESG issues. Sustainalytics puts the firm in the middle.