RegulationJan 12 2022

FCA's ESG criteria risks 'over-promising' to investors

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FCA's ESG criteria risks 'over-promising' to investors
Angel Garcia/Bloomberg
BySally Hickey

UKSIF warned the regulator needed to be cautious in automatically granting ‘equivalence’ for all of the EU’s Article 8 funds in order to secure any of the three ‘Sustainable’ labels in the UK to ensure the integrity of the UK’s system.

“Getting the underlying definitions right for the three categories (and indeed all the categories) is hugely important,” it said.

SFDR came into force at the start of 2021, however its rules were not on-shored before the UK left the EU, leaving it up to the FCA to define how sustainable funds would be regulated here.

The FCA's labels and criteria are intended to help consumers navigate their sustainability characteristics and the input received will guide the regulator's policy design in this area, ahead of consultation on new proposals in spring next year. 

Richard Stone, chief executive of the AIC, said: “People buying investments that are labelled ESG or sustainable expect them to make a real difference, rather than being a marketing opportunity for product providers. Unfortunately, we are still in a situation where too many ESG claims do not stand up to scrutiny, as the FCA has already highlighted.

"This threatens to undermine investors’ confidence in ESG investing as well as getting in the way of positive change.

“We believe the bar for investment products to call themselves sustainable should be set high enough to clearly differentiate them from other products. Product labels should be clear, and disclosures should be short and jargon-free. It’s also important that investors know whether those products are focusing on environmental sustainability, social issues, or both."

The AIC also encouraged the FCA to extend these proposed standards to all retail investment products that fall under the Priips and Ucits regimes.