The UK’s Financial Conduct Authority (FCA) has issued examples of good practice to help asset managers prepare disclosures for funds using its new sustainability-related investment labels. Under the FCA’s Sustainability Disclosure Requirements (SDR) regime, asset managers have been able to apply the four labels – Sustainability Focus, Sustainability Improvers, Sustainability Impact and Sustainability Mixed Goals – to funds since the end of July. Issuing the guidance, the FCA acknowledged that market practice was still evolving, but emphasised that specific criteria are required to be met and supported by disclosures for funds to qualify for a label. The guidance provides examples of good practice in complying with requirements including clear and measurable sustainability objectives, links between a fund’s sustainability objectives and outcomes, and policies and procedures to monitor the performance of a fund in achieving its objective. The regulator also highlighted examples of poor disclosure based on it experience to date including disclosure of an asset selection process that does not link to the specified sustainability objective of a product, and failure to disclose a manager override for asset selection. Specific to use of the Sustainability Improvers label – which typically includes assets transitioning to a low-carbon business model – the FCA also cited failure to disclose the types of evidence the manager relies upon “to satisfy itself that assets have the potential to meet the robust, evidence-based standard”. The new rules enter force in December but the FCA said it would give asset managers temporary flexibility to comply with the naming and marketing rules until April next year. “We hope to see the regulator build on this over time, including providing more detail on where firms may be falling short in their fund disclosures,” said UKSIF CEO James Alexander. “We remain confident that in time the SDR can give investors greater confidence in their investment decisions on sustainability, while helping reinforce the UK’s position as a global leader in green and sustainable finance.”
