Matcham agrees. He says when it comes to AI, regulators have a large volume of literature to consume and would be looking to use AI to help with that.
He adds: “That is very sensible as AI can help in consuming high volumes of data. But we expect at the moment that is part of helping them identify where human reviewers should focus their efforts.
“It’s important too to bear in mind that not all sustainability characteristics are driven from quantitative data, so these reviews will need to allow space to assess opinion and preference-based aspects to sustainability, which may, for now at least, need to be human-led reviews.”
As sustainable investing becomes increasingly mainstream, funds with sustainable objectives have become more readily available and accessible.
These strategies are on a wide variety of platforms, and many wealth managers now offer sustainable managed portfolio services as well.
FCA action
In March, the Financial Conduct Authority issued new guidance (FG24/3) on its anti-greenwashing rule, which comes into effect on May 31 2024.
The rule requires all FCA-authorised firms to be able to substantiate any sustainability-related claims when communicating with clients about products and services, and to ensure these claims are “fair, clear and not misleading”.
The anti-greenwashing rule is part of the new sustainability disclosure requirements and investment labels regime, finalised in November 2023.
Gemma Woodward, head of responsible investment at Quilter Cheviot, says the FCA extending its SDR to portfolio management is the logical next step in the process.
Having consistency across the investment landscape is going to be critical if the SDR labels are to be a success and that customers are not misled on the sustainable credentials of their portfolios.
Portfolio management services, be that model portfolios or bespoke offerings, have become increasingly popular in the last decade.
Woodward says: “While the burden will now increase on those providers, it is important consumers and advisers can accurately compare services and that there is a level playing field for sustainable offerings – this will be particularly interesting for bespoke offerings, which should reflect the customer’s requirements.
“This is a far-reaching piece of regulation from the FCA and as such it requires careful navigation. As the industry evolves, additional clarification on what can and cannot be said, particularly around the naming and marketing of funds and portfolios, will be crucial.
“This works both ways in that we want to avoid ‘greenhushing’ as much as preventing greenwashing. This is where an investment underplays its sustainable credentials so as not to inadvertently overstep the mark. It is a phenomenon already seen in the US and it is vital that we do not see it creep into the UK.”
