By Huw Jones
LONDON – Many asset managers seeking authorisation for sustainable funds are failing to give accurate information to substantiate their green credentials, Britain’s financial watchdog said on Monday.
Investors are putting more of their cash into funds that have a stated strategy of favouring environmental, social and governance (ESG) themes and contribute to tackling climate change and other sustainable goals.
The wall of money into ESG funds has already raised concerns among regulators over “greenwashing” or overstated green credentials.
The Financial Conduct Authority said ESG and sustainable funds are now the fastest-growing segment of the European funds market, resulting in a high volume of applications for authorisation.
“A number of these have been poorly drafted and have fallen below our expectations. They often contain claims that do not bear scrutiny,” the FCA said in a letter to fund managers, setting out guiding principles on what it expects in authorisation applications.
Questions raised by the regulator at the authorisation stage should have already been addressed earlier on.
“We expect to see material improvements in future applications,” the FCA said.
“We also expect clear and accurate ongoing disclosures to consumers where funds make ESG-related claims, and we want to see funds deliver on their stated objectives and/or strategy.”
The European Union has already set out principles for ESG investing, known as the sustainable finance disclosure regulation or SFDR, but Britain is no longer in the bloc.
Given many asset management companies are cross-border, the FCA said its guiding principles are intended to be complementary SFDR until Britain fleshes out its own regulations in this area.