The sustainable investment space has become one of the major issues of our time, and one that keeps Pimfa’s membership awake at night, so we welcomed the publication of the Financial Conduct Authority's much-anticipated policy statement (PS23/16) last November on sustainability disclosure requirements and investment labels.
This regime hopes to play a key role in increasing consumer trust in the market for sustainable investments.
The statement also included a consultation on guidelines that accompany the newly introduced anti-greenwashing rule, which unlike the other SDR rules will apply to all FCA-regulated firms.
There was a lot here for our industry to consider.
One of the key criticisms of the previous proposals was that the naming and marketing rules were too restrictive. It was our view that unless improved, the rules could result in a reduced and less effective market for investment products.
In the more recent version, the FCA has responded by amending these rules to allow asset managers to promote non-labelled funds with environmental, social and governance characteristics.
This means that non-labelled funds will now be able to use terms such as 'green', 'net zero', 'responsible' and so on when marketing.
However, there will still be rules regarding how these types of funds are marketed, along with a requirement for consumer-facing disclosures to clearly state how they are invested and why they do not use a label. It will still be the case that no fund may include the word 'sustainable' or 'impact' in its name if it does not use a label.
The new anti-greenwashing rule remains substantially the same but will be supplemented by new guidance once the current consulting period is concluded.
The FCA have pushed back the implementation date of this new rule to May 31 this year, allowing firms to better prepare and analyse the integrity of sustainability claims for their products and services, so ensuring that they are "fair, clear and not misleading".
The global nature of ESG and sustainable finance makes it desirable for standards to be harmonised at the international level to avoid conflicts and friction for business in different regions, jurisdictions, and markets.
Through this statement, the FCA has endeavoured to foster an international operating standard, and has mapped its rules to international counterparts; but the lack of an internationally recognised terminology for use in this space is still an issue that urgently needs addressing, with so many of the available sustainable funds originating offshore.
These are just some of the reasons why we strongly support the FCA as they establish an independent working group for our industry, aimed at helping financial advisers build their expertise in sustainable finance, including how the SDR and labels affect their role, and supporting them in providing advice to investors about investment products with purported sustainability features.
Daniel Godfrey, a respected figure in the finance sector, has been appointed as the chair of the working group. Julia Dreblow, widely known for her advocacy on sustainable investment, will serve as the vice-chair and Pimfa is delighted to be providing the administrative liaison and secretariat, which we are well placed to do as we represent the wealth management, financial advice and planning sector.
The FCA, which will also participate as an active observer, has asked the group to report on “how the advice sector can be supported in delivering good practice” in the second half of 2024.
Making ESG products widely and easily available will enable and empower consumers to trust and get involved in ESG investing.
Pimfa’s members will undoubtedly play a hugely significant role in helping consumers navigate the world of sustainability labels, and this new group will help significantly in providing badly needed clarity around the regulator’s expectations on sustainability matters, both in terms of investment advice and in gauging suitability.
Through this new group and beyond, we look forward to supporting both the FCA and government in this endeavour during the coming year and producing effective guidance for firms.
Liz Field is chief executive of Pimfa
