The FCA knows there will be variation within and crossover between these groups, which is in part why disclosures are needed.
This will put clear water between funds that are forward-looking, trying to change our collective outlook, and the bulk of funds that are rightly increasingly focused on managing environmental, social and governance risks.
Disclosure requirements
Underpinning these necessarily broad labels will be two sets of disclosure requirements: consumer-facing and more detailed. Some requirements will relate to funds, others to entities (see 5.22, figure seven).
The proposal is that there will be the requirement to publish a core sustainability objective, a sustainable investment policy and strategy, KPIs and metrics, and information on governance, resourcing and stewardship.
This may appear onerous to some – and to some extent it should be. But this need not be overly burdensome. Funds will require the support of teams that understand the issues a fund covers, but by focusing on what an informed and interested client needs there are many ways strategies can be run.
Other proposals, notably the "naming and marketing rules", which restricts the use of certain sustainability-related terms unless the product uses a sustainable investment label, and the general "anti-greenwashing rule" should also prove very helpful.
We need to position sustainability firmly within the "clear, fair and not misleading" landscape. The proposed "unexpected investments" or, in my words, a ‘surprise holdings’ rule (5.38) also supports this. Together these proposals should reduce the risk of greenwashing accusations.
Regarding distribution, there is work yet to be done here. But broadly, the regulator knows that success requires the support of the entire investment chain, which includes distributors, for example platforms and advisers.
And importantly, this is a consultation. We will all have opinions, and should be feeding them into the FCA.
I am uncomfortable with the proposed 70 per cent rule for the "sustainability focus" label, for example. In my opinion a fund that wants the space to invest up to 30 per cent in unsustainable assets should be called an "improver" fund, in part to avoid confusion.
Either way, I believe the proposals set out in the consultation will make it easier for like-minded clients and fund managers to find, understand and trust one another. The mass of research and consultation carried out by the FCA has facilitated this.
The UN report published on October 27 entitled "Emissions Gap Report 2022: The Closing Window" highlights the need for urgent action, stating: "Only an urgent system-wide transformation can avoid an accelerating climate disaster."
