InvestmentsJan 27 2023

ESG specialist Castlefield urges greater clarity from FCA

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ESG specialist Castlefield urges greater clarity from FCA
Ita McMahon, partner in the investment management team at Castlefield
BySimoney Kyriakou

The Financial Conduct Authority must go further to provide clearer guidance on fund categorisation under the proposed labelling scheme for sustainable funds, a specialist investment advisory firm has said.

In its response to the FCA's Sustainable Disclosure Requirements consultation, which closed this week (Wednesday January 25), Castlefield's investment management partner Ita McMahon called for more specific guidance.

McMahon said Castlefield - which has been specialising in sustainable investing for decades - was "broadly supportive" of the measures outlined in the consultation, because they would bring "rigour" to the industry by introducing a labelling scheme for funds with solid sustainability criteria. 

However, she said the regulator could have gone further, by providing more specific guidance on the types of funds that would sit in each category. 

McMahon said: "We encourage the FCA to consider the challenges that investors will face in obtaining and aggregating sustainability metrics. 

"Moreover, although we think the scheme is feasible for equity funds, more consideration is needed to ensure it can work for non-equity products too."

We endorse the proposed clamp down on using the word “sustainable”.Ita McMahon, Castlefield

And more could also be done in terms of disclosure, to make it easier for investors and advisers to see clearly which investment managers are taking environmental, social and governance investing to heart.

She explained: "As part of the proposed reporting regime, we’d like to see firms disclose the proportion of their AUM that sits within labelled sustainable funds.

"This would provide an important ‘sign-post’ for investors who would prefer to have their money managed by firms who devote a high proportion of their time and resources to investing sustainably."

Better conversations

According to the FCA, the proposals focus on asset managers and their UK-based fund products and portfolio management services.

But the watchdog has said "we will look to expand and evolve the regime over time", indicating that the direction of travel will be to ensure all providers and intermediaries are operating within the SDR guidelines.

Ben Goss, chief executive of Dynamic Planner, told FTAdviser advisers are already having "much better conversations" around sustainable investments thanks to work the company has done after launching its psychometric Investment Sustainability Preference Questionnaire in 2021.

He said the company has witnessed a significant rise in questionnaire completions and, more importantly, discussions being held between advisers and clients. 

"[Advisers] are saying they are able to have much better conversations and we have seen evidence that unprompted questions from clients around the suitability of their pensions and investments are on the rise as well."


In its original consultation paper, which it published in 2022, the FCA said: "The proposals aim to build transparency and trust by introducing labels to help consumers navigate the market for sustainable investment products.