"There can be legitimate causes for differences in assessments of sustainability of products, for example sectoral or regional differences, and it can be difficult to determine the net impact of a financial product in supporting sustainability goals.
“Ultimately, our focus is on ensuring that investors and consumers are not misled or mis-sold products that fail to meet their needs.”
Common metrics and standards
One of the themes the paper focused on, based on feedback, is common metrics and standards on sustainability.
Some respondents had expressed concerns around the difficulty in identifying genuinely green activities for investors to invest in.
The paper went on to add: “As such, respondents were supportive of internationally agreed standards and metrics for defining the sustainability characteristics of financial products.”
“It was noted that several industry initiatives, as well as the European Commission’s Sustainable Finance Action Plan (SFAP), are developing standards in this space.”
Other initiatives include; the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD), and the UK Government’s Green Finance Strategy (GFS).
The FCA will now:
- Challenge firms where it sees potential greenwashing, clarify its expectations and take appropriate action to prevent consumers being misled.
- Carry out further policy analysis on greenwashing and take action (e.g. guidance) to address concerns as appropriate. Greenwashing’ is marketing that portrays an organisation’s products, activities or policies as producing positive environmental outcomes when this is not the case.
- Engage and consider the proposals of the SFAP relevant to products and services, particularly around common standards and product disclosures
The statement follows a review in October 2018 when the FCA sought views on potential action on climate change and green finance.
John David, investment director at Rathbone Greenbank Investment says given the lack of a clear definition around what sustainable investment is, it is not surprising that DFMs are approaching this in different ways.
He adds: “Many now claim to be incorporating sustainability analysis into their investment process but for a lot of firms this is primarily centred on the integration of ESG analysis as a way in which to maximise investor returns, through identifying risks and opportunities linked to environmental, social and governance factors.
“Some DFMs are starting to introduce sustainable investment themes into their investment portfolios on an ad-hoc basis, but very few are managing portfolios that could be deemed to be holistically ‘sustainable’.
“In truth, for some this is likely to be a more gradual evolution whilst for others it will become their defining investment philosophy.”
When doing due diligence on the DFMs to work with, Mr Sayers says advisers should consider the track record of the DFM.
IFAs should also ensure the investments teams they are working with believe in the mandate they are running.
