Fund selectors were in agreement that marketing delays of the Financial Conduct Authority’s (FCA) Sustainable Disclosure Requirements (SDR) are not a concern for the industry.
Speaking at ETF Stream’s ESG ETFs Workshop 2024, fund selectors were unanimous that the extended timeline for ESG fund labelling allows more time to refine their application and meet the requirements more effectively.
The discussion comes against a backdrop of growing industry anxiety around the low industry uptake of the SDR’s four investment labels, ‘sustainability focus’, ‘sustainability improvers’, ‘sustainability impact’ and ‘sustainability mixed goals’.
Paul Dennis, investment director at Holden and Partners, said: "The general consensus is that more time is beneficial and was necessary.
“The initial timeframe given was probably too short - not a misunderstanding, but perhaps an underestimation of how much time this will actually take.
Paris Jordan, CFA, head of responsible investing at Charles Stanley, added: “When it comes to what we are selecting in terms of labelling, because we have not seen significant uptake in labelling, it is not going to affect our processes.
“We have been conducting fundamental research for ETFs, index funds, and many other types of investments for a long time. A piece of legislation from the legislature is not going to force us into a full audit in just a few months.”
Last year, the Financial Conduct Authority (FCA) said it would refine the criteria of the products that can qualify for a label and brought in the fourth category – the ‘Sustainability Mixed Goals’ – later that year.
Passive funds in the UK are expected to be "significantly underrepresented" under SDR, comprising only 7% of labelled funds.
Additionally, the ambiguity of the labels has caused confusion in the industry. A notable example is BlackRock’s recently launched climate transition ETFs, which have been classified by fund selectors as under both the 'Focus' and 'Improvers' labels.
A research report by FE fundinfo found that close to half of UK sustainable funds impacted by the Financial Conduct Authority’s (FCA) Sustainable Disclosure Requirements (SDR) naming rules will be ETFs.
