- The FCA has developed a set of guiding principles setting out their expectations on the design, delivery and disclosure of ESG and sustainable investment funds in a letter to the chairs of authorised fund managers.
- WHEB strongly supports the principles-based approach and is one of the first asset managers to respond publicly, welcoming the guidelines.
The growth in this part of the market over the last year has been extraordinary. According to recent research, sustainable funds attracted 52% of all net new flows in 2020.
However, the FCA has raised concerns about the quality of applications for authorisation of funds with a sustainable focus; “many of these applications are poor-quality and fall below our expectations”.
The FCA has developed a set of guiding principles, “informed by broad stakeholder liaison and consumer research, to help firms apply their existing rules.”
On 19th July 2021, the FCA published a letter to the chairs of authorised fund managers setting out their expectations on the design, delivery and disclosure of ESG and sustainable investment funds.
WHEB strongly supports this principles-based approach. As a specialist in sustainable and impact investing for over a decade, the growth in the number of funds is extremely welcome. The scale of the social and environmental challenges that we face requires nothing less than the full engagement of the entire capital market.
With such rapid growth however, there are concerns over the quality of ESG and sustainable funds and what that means for investors. Consumers must be able to trust that these investment products are meeting their needs and preferences whilst enabling the transition to a net zero economy.
The FCA’s overarching principle in the new guidelines is ‘Consistency’ focusing on the following:
- Principle 1. The design of responsible or sustainable investment funds and disclosure of key design elements in fund documentation
- Principle 2.The delivery of ESG investment funds and ongoing monitoring of holdings
- Principle 3. Pre-contractual and ongoing periodic disclosures on responsible or sustainable investment funds should be easily available to consumers and contain information that helps them make investment decisions
As detailed in our letter to the FCA, written by WHEB’s Non-Executive Chair Jayne Sutcliffe, we welcome this principles-based approach.
Head of Research Seb Beloe said:
“The ESG and sustainable investment market is in a period of great dynamism. This is evident in the absolute growth of assets under management. It is also clear in the tremendous innovation taking place in the market and in underlying investee business models and technologies. Adopting high-level principles with detailed guidance on what this means in practice will, in our view, enable innovation to continue that delivers real value to investors and real progress in addressing underlying social and environmental challenges. In contrast, more prescriptive approaches risk stifling this innovation.”