UK sustainability rules may set ‘high bar’ but cloud definitions

For pension funds and other institutional investors, the rules “may make it difficult for institutional investors to assess the soundness of ‘sustainable/ESG’ products,” Edina Molnar, vice president of sustainable investments at consultancy Redington, said in an emailed statement.

As the FCA currently proposes, the rules “will allow firms to market certain products as sustainable to institutional investors, but not to retail clients. We believe that this discrepancy will introduce significant difficulties,” Ms Molnar said.

However, “with the right parameters and implementation, the proposals could help in the fight against greenwashing in the industry,” she said.

James Alexander, chief executive of the British Sustainable Investment and Finance Association, said in an emailed statement that the FCA proposal “marks an important milestone in achieving the UK’s goal of becoming a global leader in the rapidly evolving market for sustainable investment.”

In a commentary letter to the FCA, UKSIF, whose members represent £19 trillion ($23.21 trillion) in total assets, acknowledged that greenwashing has “eroded confidence among many retail savers and institutional investors” and the need to “strengthen the trust”. in sustainable investment.

The FCA’s proposed disclosure framework for investment firms could also help ease their reporting burden “and better inform firms about investment and capital allocation decisions in the economy,” UKSIF said in a comment letter.

However, the timing of disclosures “could be challenging”, UKSIF said, and there were “real risks” that UK asset managers and funds could face “the same major challenges related to the EU Disclosure Regulation”. sustainable finance” which include a “fuzzy definition” of sustainable investment.

UKSIF also urged FCA officials to reconsider how sustainability labeling will apply to asset classes other than equities and, among other things, how funds of funds are handled.

Greater disclosure of ESG by investment managers and clearer labeling of ESG products are “increasingly becoming a major investment topic for a growing number of investors. A broader level of ESG disclosure will become more important to maximize transparency and empower investors,” said Morningstar spokesman Andy Pettit, director of policy research and Arthur Karabia, director of policy research at ESG, said in a separate statement, supporting the FCA’s goal of “setting a high bar.”

And while the FCA rules will become voluntary when finalized, “we believe they will become the de facto for all investment managers going forward to keep up with the dynamic environment,” said Cady Thomas, head of ESG research at pension advisor Isio. . “The new rules are likely to have a big impact on the UK’s sustainable investment landscape,” Ms Thomas said in an emailed statement.

In October, the FCA said it intended to finalize the rules by the second half of 2023.

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