UK outlines future sustainability standards for funds – 11/04/2022 at 10:15

(NEWSManagers.com)

– Sustainable funds yes, but sustainable made in the UK. The British financial market regulator Financial Conduct Authority (FCA) launched in the middle of last week a public consultation on its future rules and sustainability labels for local investment funds (Sustainable Disclosure Requirements

or SDR). This will continue until January 25, 2023 and

refined rules based on the responses received will be proposed by

the end of the first half of 2023. The primary goal for this future

regulation is to protect the individual investor against the risks of greenwashing

in so-called sustainable funds in Great Britain. It will not be effective

before June 30, 2024, and its rollout will be delayed until 2026.

Foreign funds are not covered by the consultation

but the FCA will undertake further consultations to determine how

apply future rules to them.

The FCA is aware that it will introduce a

additional dose of complexity in the regulatory ecosystem

existing in this area, already ambiguous for asset managers

like regulators. It says it is ensuring consistency between its future rules and those already in place in Europe – the Sustainable Finance Disclosure Regulation (SFDR), Level 2 of which comes into force on 1 January 2023 – and those coming from the US regulator Securities and Exchange Commission.

However, the content of the hearing clearly shows that they

sustainability criteria for UK funds will get closer

American and European criteria.

And for good reason, unlike the SFDR, the regime

intended does not require publication of information on the most important

the funds’ negative effects (main negative effects) or theirs

alignment with the future UK green taxonomy, not proportional either

of sustainable investments. With regard to its local version of the European regulation Priips, where the performance scenarios of the funds disappeared from

prospectus, the United Kingdom embraces European elements that it considers

too restrictive. The FCA says it will update its criteria for

publication of information in line with developments in

standards from the International Sustainability Standards Board.

“If our diet is compatible with

European and American regimes, our starting point is different. Our

the logic behind product categorization is to help

consumers to identify sustainable investment products and to

find around the market. Our criteria are thus designed for

set the bar very high for products that claim

sustainability, which is important to help combat

greenwashing in connection with a trust issue. Point off

the departure of the European and American regime was on the contrary

categorize products mainly to determine the requirements for

publication”, emphasizes the FCA, which is also ready to accept

consider the rules that will develop in others

markets if these become important to the UK market.

By implication the emerging countries, especially China.

Three categories

This English SFDR is based on five principles:

a sustainability objective, the investment policy and strategy,

the performance of key measurements (greenhouse gas emissions

among other measurements), the implemented resources and the management

as well as the investor’s policy for shareholder involvement (stewardship).

Three categories of sustainable labeling are

possible for funds. SFDR articles 8 and 9 funds may

soon to oppose the foundations’ sustainable focus, sustainable improvements and sustainable impact. The first category – sustainable focus

– will include funds for which at least 70% of the assets are considered adjusted

on a credible standard in relation to sustainability in terms of

environmental and/or social, as well as means that highlight a

specific environmental or social theme (circular economy at

example).

Means with the label sustainable improvement means

will have to invest in assets that have the potential to become more

socially or environmentally sustainable over time. Compared to

sustainable impact funds, they must be able to

to achieve a pre-defined, positive and measurable result in the world

real on the environmental and/or social aspect.

Categorization promises to be as chaotic as SFDR’s

as it will be up to each manager to classify his products himself

durable and to ensure that classification is appropriate. “Unit

fund approval will review and may be challenged

categorization of any new funds submitted for approval.

However, this will not be a brand endorsement,” warns the FCA.

An average adaptation cost estimated at £604,000 for managers

Other documentation rules

pre-contractual and marketing as well as on the annual reporting of

sustainable means are disclosed in the consultation. If they have

funds labeled or not, the trustees must publish a report

on how their entities manage the risks and opportunities associated with

durability. The FCA is considering a date of 30 June 2025 for

first reports from companies managing £50bn of assets

or more and on 30 June 2026 for those managers whose

outstanding is less than DKK 50 billion. but greater than 5 billion

books. The FCA further proposes to restrict the use of terms

related to sustainability in naming and marketing of

products offered to retail investors who would not use

sustainable investment brand.

The regulator estimates the amount of this future

regulation for asset managers, advisers and trading platforms

distribution of local funds is spread over 146.7 million pounds

(€169 million) of non-recurring costs and £26.7 million (31

million euros) of current costs. For an asset manager

British, the average bill would amount to £604,000 as a

adaptation costs and DKK 239,600 in the form of ongoing costs

yearly.

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