UK’s FCA outlines ESG expectations for fund managers

The continuing regulatory pressure with regard to environmental, social and governance (ESG) standards has continued with the UK’s Financial Conduct Authority providing expectations to fund managers.

The FCA has this week written to fund managers setting out its expectations on the design, delivery and disclosure of and sustainable investment funds.

The guiding principles complement the FCA’s recent proposals to implement climate-related disclosure rules for asset managers, life insurers and FCA-regulated pension schemes.

According to the FCA, it receives a high volume of applications for authorisation of funds with a sustainable focus. However, it added, many of these applications are poor-quality and fall below its expectations. As such, it also expects clear and accurate ongoing disclosures to consumers where funds make ESG-related claims:

“We have therefore developed a set of guiding principles, informed by broad stakeholder liaison and consumer research to help firms apply our existing rules. The guiding principles are there to ensure that any ESG-related claims are clear and not misleading, both at the time of application and on an ongoing basis, so that consumers can make informed choices.”

“We will continue to scrutinise and challenge firms on their fund strategies and disclosures and to ensure that documentation submitted to us for authorisation meets our regulatory requirements.”

The regulator said that the guiding principles are relevant where an FCA authorised investment fund pursues a responsible or sustainable investment strategy and claims to pursue sustainability characteristics, themes or outcomes.

These principles are targeted at funds that make specific ESG-related claims, not those that integrate ESG considerations into mainstream investment processes.

Read the Dear chair letter (PDF)