Close to half of UK sustainable funds impacted by the Financial Conduct Authority’s (FCA) Sustainable Disclosure Requirements (SDR) naming rules will be ETFs, according to research from FE fundinfo.
The research found that of the 1,213 UK funds with sustainability-related terminology in their names a disproportionate number (48%) are ETFs.
The rules require funds with the term ESG or sustainable in their name to have at least 70% of assets under management in sustainable investments.
The rules are set to come into effect on 2 December after they were announced in May this year.
Matthias Breier, head of ESG product at FE fundinfo, said: “We are likely to see some movement in the ESG market over the coming months, as some firms will have to rebrand or reposition their funds if they cannot comply in time.
“Everything needs to be wrapped up in early October to ensure investors receive all the necessary disclosures in the required 60-day window.”
It comes at a time when there is growing industry anxiety around the low industry uptake of SDR’s four investment labels, ‘sustainability focus’, ‘sustainability improvers’, ‘sustainability impact’ and ‘sustainability mixed goals’.
Passive funds for sale in the UK are likely to be “significantly underrepresented” under SDR and are expected to account for just 7% of funds expected to be labelled.
As most ETFs are registered overseas they are not currently in scope.
In February, the UK government launched a consultation on broadening the scope of SDR to include overseas funds.
The UK has a higher percentage of ETFs in its total ESG fund universe affected by the rules compared to EU ESG funds.
For example, out of 1600 EU ESG funds impacted by the new rules, just 21% (354) are ETFs and index funds, according to Morningstar Sustainalytics research.
However, they account for almost half (45%) of the $40bn worth of stocks affected by the exclusion rules.
On the continent, the European Securities and Markets Authority recently set a November deadline for funds to comply with its ESG fund naming rules.
