Less than a year after the consumer duty, another addition to the Financial Conduct Authority Handbook will come into force by way of an anti-greenwashing rule.
The rule, which comes into effect on May 31, is one of several measures the regulator is introducing through its sustainability disclosure requirements and investment labels regime.
Sustainable investment labels, which asset managers can choose to use, will also be available from July 31, before naming and marketing rules come into effect from December.
At Bovill, consultant Luke Murray says asset managers the regulatory consultancy is working with are starting to review their sustainability communications and marketing materials to ensure they comply with the anti-greenwashing rule.
“Managers in particular that use sustainability language but do not necessarily offer sustainability products are now applying rigour to how they communicate to clients and the public through materials on their websites,” Murray says.
“Given the short time in between the enforcement deadlines for the labelling and consumer-facing disclosures after the anti-greenwashing rule on May 31, we are working with managers who are already going through the qualifying criteria for the sustainability labels to ensure their funds meet the requirements.
“This has so far taken the form of a mapping exercise for the manager to go through the areas of the criteria, to see where the gaps are in meeting the label where the manager believes a product requires one.”
Stuart Burnside, head of product governance & ESG product at M&G Investments, likewise raises the possibility of products with and without a label being interpreted as "good" and "bad" respectively, and asset managers therefore changing products so they qualify for a label.
According to the FCA, investment strategies such as exclusions, negative screening, environmental, social and governance-themed integration or basic ESG tilts alone will not be enough to qualify for a label; although Burnside notes there may be a valid place for exclusionary products without them being sustainable.
On the other hand, Burnside mentions 13 ESG-associated UK funds offered to retail investors by M&G where the SDR and labels regime would be applicable.
“In terms of the practical steps we’re taking, I’ve been through it with my colleagues, and I’ve got a first view on what I think is probably the correct label.
“And of those 13 funds, I think 10 are essentially parallels to SFDR Article 9 funds. They’re already quite ‘dark green’, so I’m reasonably comfortable that they will work in some fashion.”
At Schroders, a spokesperson likewise says how the asset manager is reviewing the FCA’s proposals to confirm how its sustainable UK-domiciled funds may retain their sustainable status when the SDR regime comes into force.
Citing a rigorous approach to developing “robust” sustainable investment strategies, Schroders says it expects this will leave the asset manager “well placed” to meet SDR requirements.
The spokesperson adds: “We have developed infrastructure and technology to monitor engagement activity, which we believe will help ensure we are able to meet the stewardship expectations in SDR’s requirements.”
Where products are labelled, asset managers will also be required to produce a “clear, concise consumer-facing disclosure”, as well as for products that use sustainability-related terms without a label.
Meanwhile, distributors, including advisers, should prepare to make the labels and consumer-facing disclosures available to retail investors, according to the policy statement.
“The first thing I would want to check if I were an adviser is, are the pipes and plumbing in place to give me that document?” says Burnside.
“You’re likely to want to check on the conduit between the manufacturer and you, and say, ‘Are you ready to push this document through as and when it becomes available?’”
Gillian Hepburn, commercial director at Benchmark, the wealth management business that is part of Schroders, also highlights the importance of advisers engaging with asset managers, and asking for help and support on the upcoming SDR and labels regime.
“It’s a two-way process,” Hepburn says. “Equally, whilst the asset managers can be trying to work with advisers, it’s got to be two-way. I think advisers have got a real responsibility to say to their asset manager, ‘Can you help? Can you help give us the right training and education?’”
Advisers will also be required by the regime to include a notice on overseas products to clarify that they are not subject to the UK sustainable investment labelling and disclosure requirements.
At M&G for example, Burnside refers to its Luxembourg range that is sold into the UK, but not subject to the FCA’s upcoming regime.
Although not an obligation for product manufacturers, Burnside says: “One of the things that we are doing to try and help a bit, to the extent we can, is we’re going to put a one-liner into our UCITS KIIDs to make clear that it’s not a SDR fund.”
As well as this voluntary clarification, Burnside says the option for asset managers to label products at different times after July 31 will enable managers to learn from each other. “If a firm like ours adopts early, we will put out into the market, available to everybody, some SDR materials.
“So if you’re a UK-only firm that’s got no SFDR familiarity and that runs just UK money, you’re not having to run on the same timeline, and you can see some examples of how other people have done it.”
Chloe Cheung is a senior features writer at FT Adviser
