The Financial Conduct Authority’s Sustainability Disclosure Requirements (SDR) are “supposed to be painful” for the fund-management industry, CCLA head of sustainability James Corah has insisted.
Last November, the regulator published its SDR consultation policy statement, which set out four labels introduced for sustainable funds.
It said that investors were “not confident” that sustainability-related claims made about investments were genuine.
Corah said the regulations were “intentionally painful” to ensure the asset-management industry builds a “higher bar for funds”.
“We’re all in this together,” he told Money Marketing. “Of course, there’s competition and a need for consumer understanding, which is important for driving competition and avoiding greenwashing.
“But the regulator’s goal is to nudge the sustainable finance industry to play a much more meaningful role in the transition to a better world.”
He described SDR as a “very useful” piece of regulation.
“This will ultimately strengthen the UK industry in the future, because we’ll have higher quality funds at the end of this process,” he added.
“We haven’t reached that stage yet, but all I can say is that the regulator has been unprecedentedly helpful in encouraging progress in this area.
“This reflects their understanding that it’s in their interest to move forward – both to address risks in the industry and to strengthen the UK industry as a whole.”
In April, the FCA announced it will extend its SDR rules to include portfolio managers.
It said the new rules are designed to protect consumers by ensuring sustainable products and services they are sold are accurately described.
This will include model portfolios, customised portfolios and/or bespoke portfolio management services.
Corah insisted that the regulator, fund managers, portfolio creators and advisers must all “work together” to ensure the SDR rules work properly in the future.
“It’s in everyone’s interest to make this regime work,” he said.
MM Meets… Jasper Berens: ‘I thought: this is the moment’
CCLA head of client relationships and distribution, Jasper Berens, said he believes there is still “considerable” consumer demand for sustainability.
“Anyone who says that demand is dropping off either isn’t talking to the right people or to the right generation,” he told Money Marketing.
“I completely understand that things [to do with ESG] are coming under scrutiny, but our feeling is that the regulator is doing the right thing.
“If the data shows that three-quarters to four-fifths of consumers are interested in sustainability and sustainable investments, then this issue is not going away.”
Berens suggested one reason sustainable investing may not have taken off as significantly in the broader intermediated market is that advisers have been overwhelmed by the “alphabet soup” of different sustainability capabilities in what was essentially a “wild west of product development”.
“What the regulator is doing is ensuring that the market comes to terms with this and creates a much more structured and efficient approach to sustainability for the intermediary market,” he added.
“We are very supportive of that, no matter how difficult it may be.”
Berens pointed out that there had been “a lot of noise” in early summer about how few funds had been approved across the different label structures.
“The reason is that they are setting a very high bar and they’re right to do so, because they want the system to work.
“Ultimately, they want consumers, through their advisers, to be really confident in the system.”
He suggested the regime in the future will have far fewer labelled funds, but consumers will ultimately have much greater confidence in the fund-management system.
“Right now, we’re just going through the challenge of fund managers figuring out exactly what they need to do to become labelled and ensuring that what they’re doing is right and fair, and provides the right outcomes for their consumers.”
He said he expects there to be a “crescendo” early next year, as more fund managers come to the table with more products.
The regulator has said it will offer firms temporary flexibility on its ‘naming and marketing’ sustainability rules, which came into force on 2 December this year.
The temporary flexibility came into effect on 9 September and will run until 5pm on 2 April 2025.
The FCA has warned that, where firms can comply with the rules without requiring this flexibility, they should do so.
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