As the deadline approaches for the regulator’s greenwashing consultation (25 January 2023), Joanne Rigby, Technical Director at Tenet, comments on what this could mean for the advice market and says it’s vital advisers take this opportunity to help shape the new rules:
“ESG has become a key consideration for many investors and is clearly here to stay, but the market has become flooded with products in the scramble to meet client demand and is awash with terms, acronyms and little in the way of standardisation – at least so far.
“The wave of recent ESG reclassifications and downgrades from fund houses feels like a turning point. The regulatory environment is tightening and there are a number of measures within the regulator’s consultation paper that could go a long way towards addressing the very real risk of greenwashing to help the advice market.
“For clients this should ease concerns and instil greater confidence. So far, those interested in the future of the planet but not comfortable switching their pension or ISA into sustainable funds could find other ways to do their bit. However, the proposed disclosures and reporting requirements should provide them with something much more tangible to base their investment decisions on. It should also help clients understand the different approaches that ESG funds take, so advisers can then have better conversations with them around their choices.
“For advisers the consultation is welcome but they’re still clamouring for further guidance from the FCA on expectations for identifying client preferences and establishing suitability for sustainable investment approaches. The regulator has promised a consultation on this, but it hasn’t been forthcoming. Meanwhile better regulation for data providers and more standardisation and alignment of ESG ratings would have a real impact on making ESG more mainstream and advisers more interested.
“Finally for investment providers, clearly there is a lot to consider. The aim is to make sustainable investing less confusing for consumers and advisers, but the jury’s out on just how well fund managers can implement this and present the prescribed information. For instance, popular funds in this space may simply all adopt the same label, creating little differentiation for advisers struggling to navigate the market. The rules will be challenging and given the reporting requirements we should expect some push back from the fund industry.
“In the meantime, with the January consultation deadline approaching it’s vital advisers take this opportunity to have their say on shaping the new rules and regulations and bringing greater clarity to this high-potential market for the benefit of the advice sector and consumers alike.”
