A recent survey conducted by the Financial Conduct Authority (FCA) indicated that 80% of respondents wanted their investment portfolios to “do some good” as well as providing them with a
financial return, and 71% wanted to invest in a way that “is protecting the environment”.
In November 2021, the FCA published a discussion paper; ‘Sustainability Disclosure Requirements and Investment Labels’, to try and unpick the various problems investors are currently faced with when trying to find investment funds which can meet these needs – and equally importantly, to understand how financial advisers can help them choose from the options available:
…we recognise the important role that financial advisers play in providing consumers with sufficient information to assess which products meet their needs. We are also exploring how best to introduce specific sustainability-related requirements for these firms and individuals. Building on existing rules, a key aim will be to confirm that they should take sustainability matters into account in their investment advice and understand investors’ preferences on sustainability to ensure their advice is suitable.
One problem associated with the area of ESG (Environmental, Social, Governance) investing is that of labelling. The increasing number of different ‘green’ labels can be confusing for investors and
advisers alike, with funds being variously labelled as ‘green, sustainable, ethical, ESG, SRI (Socially Responsible Investing) or responsible. To aid investors and provide clarity to adviser, the FCA is
proposing five high-level classification categories:
- ‘Not promoted as sustainable’ – Here, sustainability risks have not been integrated into the investment philosophy of the product and there are no specific sustainability objectives.
- ‘Responsible’ – The impact of sustainability factors on risk and return has been considered. There should be a level of ESG integration into the product’s management, with evidence of ESG capabilities and resources from the manager, and demonstrable investment stewardship.
- ‘Sustainable – Transitioning’ – Products with sustainability characteristics, themes or objectives which do not yet have a substantial proportion of underlying assets that meet the sustainability criteria set out in the UK Taxonomy, but the expectation is that this proportion will rise over time.
- ‘Sustainable – Aligned’ – Products with sustainability characteristics, themes or objectives which have a substantial proportion of underlying assets that meet the sustainability criteria
set out in the UK Taxonomy. - ‘Sustainable Impact’ – Products with explicit objectives to deliver net positive social and/or environmental impact as well as a financial return.
The interest in ESG investing is growing rapidly both in the UK and beyond, driven by strong consumer demand as well as significant importance being placed on the sector by governments.
With increasing choice now available to our clients, we will be incorporating sustainability and SRI into our discussions with you, as well as into our formal advice process.
