MainStreet Partners, the London-based independent ESG Advisory and Portfolio Analytics firm, has today launched an SDR market solution to support the under-served and overlooked fund buyer segment of the market.
MainStreet Partners warned earlier this month that fund buyers – discretionary fund managers (DFMs), Model Portfolio Service (MPS) providers and wealth managers – were in need of support to meet the new SDR labelling regime that comes into effect on 31 July 2024.
It cautioned fund buyers against “an ostrich-like denial” about the SDR transition during the window of implementation for SDR-compliant naming and marketing rules (ending 2 December 2024, when funds are liable to FCA enforcement action).
Jacob Kasaka, Research Associate at MainStreet Partners, explains:
“A particular challenge for fund buyers is how to define an absolute measure of sustainability for each fund and then measure and monitor the assets sustainability performance. Some wealth managers are looking to rely on the underlying fund labels with a ‘sum of the parts’ approach, while some wish to perform ‘look-through’ on portfolios to analyse each underlying security.
Both of these approaches are misaligned with the spirit of the regime, they can be cumbersome to perform and can feel overwhelming for fund buyers to process, let alone to commit to operationalising. In addition, a requirement of the FCA SDR is that fund buyers and asset managers provide an independent assessment of the absolute measure of sustainability.
Taken together, this is a huge compliance headache that we aim to solve with our dual offering of an independent, experienced and qualified assessment alongside the new Fund Sustainability Due Diligence Report for asset managers and fund buyers.”
Today, MainStreet Partners launches a product and service combination that provides an easy solution tailored specifically to the challenges faced by fund buyers.
This is the much-needed answer to the challenge of how fund buyers define an absolute measure of sustainability for the assets they invest in and how to evidence sustainability performance of those funds, outlined by SDR.
Moreover, asset managers, DFMs and MPS providers can utilise this product and service to demonstrate an independent assessment – delivered by an appropriately skilled team – of their robust, evidence-based sustainability measure, outlined by SDR.
Introducing: Fund Sustainability Due Diligence Report
MainStreet Partners’ Fund Sustainability Due Diligence Report consists of a detailed qualitative and quantitative output, which is the result of MainStreet’s detailed Sustainability Due Diligence Assessment Process. This includes fund manager interviews and deep analysis of all fund documentation and portfolio holdings to derive a 1-5 ESG Rating. Funds with a 4 or above rating are eligible to receive a formal letter of Certification, outlining that the fund has met the SDR standards set out by the FCA, which can be shared publicly to investors or more widely by the client.
MainStreet Partners’ Fund Sustainability Due Diligence Report can be used:
· As an additional input into screening and compliance frameworks;
· Supplement to existing due diligence, providing transparent and measurable details around the sustainability credentials of funds beyond MainStreet Partners ratings;
· Or create a new, absolute standard by combining the depth and breadth of all ESG Fund Research to frame a bespoke, sustainable investment process for fund buyers.
Where the EU’s SFDR is a disclosure regime, SDR is the FCA’s line in the sand against greenwashing and is more demanding, requiring asset managers (and potentially wealth managers in future) to bring in independent experts and devote increased resource.
Asset managers running sustainability strategies may have ESG teams directly involved in investment processes, which would fail the independent criteria. Conversely, asset managers have independent risk and control function that may not have the adequate ESG expertise to assess the sustainability criteria of investment strategies.
Neill Blanks, Managing Director at MainStreet Partners, says:
“We have developed this SDR solution because there are so many fund buyers and single-strategy equity, fixed income and multi-asset portfolio managers we know of that have been struggling with how they would even begin to demonstrate the process they would follow in order to disclose this in their pre-contractual notification to the FCA.
We have the deep ESG expertise and fund management knowledge – evidenced over our almost 20 years in the industry – that puts us in a perfect position to support UK asset managers with the complexities of complying with SDR.
By launching our new Fund Sustainability Due Diligence Report and formal letter of Certification leveraging our independent Due Diligence Assessment Process, we are alleviating a significant worry for fund buyers and asset managers, providing a clear route to SDR compliance now and ongoing.”
The approach taken by MainStreet Partners when assessing funds is on a uniquely absolute basis, differentiated from the typical fund ratings offered on a sector relative basis. With the ‘absolute’ requirements of SDR, the Fund Ratings are well positioned to aid the market. The dedicated Sustainable Fund Research team brings 13 years’ of ESG Fund analysis and assessment experience to their independent assessments for the fund management industry. MainStreet Partners – now part of the largest WealthTech group in Europe, Allfunds Group – has been providing top-tier investors and distributors a one-stop shop for their sustainability requirements at portfolio level for almost 20 years.
