FCA warns many firms not meeting SDR standards

November 17th, 2023

The UK Financial Conduct Authority (FCA) found many firms must improve their disclosures to meet the Sustainability Disclosure Requirements (SDR).

The FCA published its review on how Authorised Fund Managers are embedding the guiding principles in ESG and sustainable investment funds this week, ahead of the release of its final rules and guidance on SDR.

It found the disclosure principle, one of the 12 guiding principles, had not been fully embedded in some companies, which meant key ESG information was difficult to identify and made it more challenging for investors to make informed decisions.

It also found the design of some fund managers’ stewardship approaches did not meet the FCA’s expectations.

The regulator said it was often difficult to identify the exact aim of the stewardship activities, how the activities were aligned to fund objectives, and examples of the progress they made against those aims.

The review highlighted the challenges fund managers face in their oversight of older funds, including those that had been adjusted after their launch to include ESG objectives. These funds had limited records of crucial governance decisions and discussions.

It also found products were inconsistently aligned with their ESG and sustainability goals, and that in some cases the fund managers weren’t able to explain how these investments fit with their goals.

Camille Blackburn, director of wholesale buy-side at the FCA, said: “The UK’s asset management sector is world-leading and we want to keep it that way.

“The changes we are making to the regulatory regime through upcoming rules on labelling will help retail investors and consumers understand and be confident in knowing exactly what they are investing in.”

The review follows the FCA’s Dear Chair letter which was issued to fund managers in July 2021 outlining the guiding principles for sustainable investment products.