From Morningstar:

The Financial Conduct Authority (FCA) has introduced Sustainability Disclosure Requirements (SDR) and investment labels for investment products to improve transparency and minimize greenwashing. The four new sustainability labels: “Sustainability Focus”, “Sustainability Improvers”, “Sustainability Impact”, and “Sustainability Mixed Goals” were specifically created for this purpose. The use of these labels is voluntary and asset managers will be allowed to use them starting from July 31.

It is predicted that around 300 UK funds will opt for one of the four labels, representing 8% of funds domiciled in the UK and less than 3% of all funds available for sale in the UK. In terms of assets, these funds would amount to around £110 billion.

Among the labeled funds, 46% are expected to be “Sustainability Focus”, 31% “Sustainability Mixed Goals”, 12% “Sustainability Improvers”, and 11% “Sustainability Impact,” making “Sustainability Focus” the dominant label for asset managers.

According to preliminary analysis, passive funds will be significantly underrepresented, as most of the UK-domiciled passive funds are exclusionary or tilted strategies. Out of the approximately 300 UK funds, just over half (52%) would offer exposure to equities, while multi-asset funds would account for 31% and fixed income for only around 8%.

There is likely to be not as many “Sustainability Improvers” labeled funds due to the strict requirements and the preference of managers to hold a mix of assets that have different sustainability strategies. Additionally, only a small number of funds are expected to use the “Sustainability Impact” label due to its strict criteria and difficulty showing evidence of impact in the listed market.



Read more: Green Governance: FCA Clampdown Could Affect 300 Funds