Written by Carlota Esguevillas, Head of Responsible Investment, EdenTree
Last year the FCA published its long-awaited “Sustainability Disclosure Requirements (SDR) and investment labels policy statement”, with the aim of ensuring that financial products marketed as sustainable do not mislead consumers. This is an important moment for our industry and one which, in our view, will help customers navigate a complex landscape and ultimately combat greenwashing.
The final policy statement has taken into account our feedback on several points, including on the concept of additionality, the need for an absolute measure of sustainability, and support for qualitative standards to reduce reliance on ESG ratings. In our view, the final set of rules have found a good balance between principles and prescription, which should avoid many of the pitfalls seen in the EU’s SFDR regime. Given the recent growth of the industry, the number of new entrants, and the range of terminology currently used (often interchangeably), we believe bringing clarity to the market is essential and our primary reaction is one of support.
We are particularly pleased to see the FCA introduce a 70% threshold across all labels (not just for the Sustainability Focus category, which was proposed during the consultation process) – although we continue to believe this threshold should be set higher. We were also pleased to see the FCA state that ‘absolute’ measures of sustainability should be used, and that ‘best-in-class’ funds would not be suitable in the Focus or Impact categories. This aligns with our belief that assessments of sustainability should be based on absolute standards of responsible business conduct – not on ‘the best’ of harmful sectors like tobacco, oil and gas. Lastly, we welcome the inclusion of a requirement to ‘do no significant harm’, believing strongly that positive environmental and social outcomes should not be pursued to the detriment of people or the planet.
Our intention is to adopt the Sustainability Focus and Sustainability Impact labels separately and appropriately for our entire fund range at the first opportunity, with our Multi-Asset range adopting the Mixed Goals label with each sub-fund investing in a blend of Focus and Impact strategies. Given our longstanding approach to Responsible and Sustainable investment, our product range – and, indeed, our processes, governance structures and fundamental purpose as a business – is intrinsically aligned to the FCA’s new SDR and investment labelling regime.
The SDR labelling regime is non-hierarchical and is comprised of four investment labels: Sustainability Impact, Sustainability Focus, Sustainability Improvers and Sustainability Mixed Goals.
