The Financial Conduct Authority has set up a working group for financial advisers to help them establish how its new ESG rules will help them.
The new package of measures announced today (November 28) includes an anti-greenwashing rule for authorised firms, four investment labels and new rules and guidance for the marketing of investment funds on the basis of sustainability characteristics.
The FCA said financial advisers had an important role to play in supporting consumers and it warned them to ensure the labels and consumer-facing disclosures were made available to retail investors.
But the FCA added: "We are aware that not all advisers feel comfortable talking to clients about sustainability. We therefore plan to set up an independent working group for the advice industry to work together to build on existing capabilities in sustainable finance, including how the SDR and labels support their role."
Meanwhile experts warned advisers they cannot ignore the impact of the “landmark” new sustainability labels and anti-greenwashing rules set out by the FCA.
Gemma Woodward, head of responsible investment at Quilter Cheviot, said: “The Sustainability Disclosure Requirements landmark piece of regulation from the FCA and has the potential to alter the sustainable investment landscape here in the UK.”
After consultation, the regulator decided to introduce a fourth label, titled Sustainability Mixed Goals, which will join; Sustainability Focus, Sustainability Improvers and Sustainability Impact.
Woodward said the fourth mixed label will open up a wider range of options available to investors looking for sustainable funds, adding the 70 per cent threshold, considered high by some, is needed to avoid greenwashing accusations.
She added: “While the vast majority of this regulation applies to asset managers and fund providers, advisers cannot simply ignore its impact.
"It is pleasing to see the FCA has considered the communication aspects of these labels for advisers to clients, and that it intends to work collaboratively with the adviser community to build on SDR in the distribution chain. But while the advice process remains as it is today, it won’t be long until changes around sustainable investment will be required.
"Ignoring it now is simply kicking the can down the road. SDR is a good starting point for advisers to build on and be proactive in an area that the FCA is clearly watching closely.”
Ita McMahon, partner of investment management at Castlefield welcomed the clarity today’s announcement brings.
She said as with any new scheme, there’ll be "bumps along the road" as firms begin interpreting and implementing these guidelines, but Sustainable Disclosure Requirements (SDR) represents a big step forward for the industry.
“We hope it will help facilitate dialogue between advisers and clients on the options for sustainable investing," she said.
Flexibility and improvements
Richard Monks, UK sustainable finance partner at EY, also welcomed the introduction of the mixed label.
He said: “There is flexibility around meeting the SDR, and firms will need to make their own judgements about labels, disclosures and data, and anticipate end-consumer outcomes – all of which come with their own challenges. Helpfully, the rules allow for the continued use of most sustainability-related terms provided appropriate disclosures are made..
“The FCA clearly expects firms adhere to this high regulatory standard by the deadline, and firms now face a challenge to meet tight implementation timelines, with many needing to review and adapt their current plans.”
Meanwhile, Joseph Pinto, chief executive at M&G Investments, said the rules will improve market confidence and build public trust in sustainable investing.
“The new regulation rightly focuses on the protection of consumers whilst leaving plenty of space for product innovation within the asset management industry,” said Pinto.
However, some did accept the regulations with open arms.
The FCA's changes were slammed as greenwashing by Iona Silverman, partner at law firm Freeths.
She said: "The FCA’s proposals are overdue and scant on detail.
"Both financial advisers and consumers alike need transparency to enable informed decision making when investing.
"The FCA needs to up its game and do much more to reassure investors that they are making the right choices."
tara.o'connor@ft.com
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