Lee Coates and Elly Dowding, directors at ESG Accord, provide answers to some of the questions arising now the Sustainable Disclosure Requirements (SDR) rules are in situ.
The rules are here!
Lee: The focus on greenwashing and sustainable investing so far has largely been on how fund managers communicate their products. But since May 31, the anti-greenwashing rule applies to all FCA-authorised firms making sustainability claims. This isn’t just about fund managers; it impacts everyone in the advisory chain.
Elly: With the new sustainability labels now live since the end of July, advisers need to be aware of the significant changes happening behind the scenes (fund name changes, prospectus and other pre-contractual changes, phased approaches to the labels) with everything needing to be in place before Dec 2nd when the naming and marketing rules kick in.
Advisers need processes in place now to meet distributor requirements and identify to identify clients’ preferences and objectives for sustainability, ESG, ethical and traditional funds.
What are firms doing now?
Lee: We’ve been training firms, both large and small, to prepare for the SDR. Education and a robust, repeatable process are crucial. It’s a big change for compliance and advisers, but we offer a free template process on our website.”
Elly: Time is of the essence. Advisers need to understand the new labels and be ready to provide necessary disclosures. By December, even non-labelled funds with sustainability characteristics will require consumer-facing disclosures.
For more info, visit the FCA’s consumer-facing page, HERE>
What do advisers need to do?
Lee: Advice firms must prepare their client processes to fully explore client preferences. Training and anti-greenwashing checks should be standardised across the board.
Accord Initiative provides free-to-access templates for the advice process.
Elly: Advisers also need to be ready to provide notices on overseas funds, many Central Investment Portfolios (CIPs) contain overseas funds.
Other considerations
Lee: Unintentional greenwashing is a real risk. Advisers must be careful with their language, not just in meetings but also in suitability letters. This ties directly into Consumer Duty.
Elly: The transition to net zero is accelerating, and advisers must understand the evolving landscape. We’re seeing a trend towards the Impact label among funds, driven by the detailed reporting requirements that make them more prepared for the UK labels.
Final Thoughts
Lee: We totally get that change can be challenging and time-consuming, especially if there’s resistance to gaining sustainability knowledge. Supporting advisers through this transition is what we do!
Elly: We are super excited about what the SDR really means to consumers and advisers. By the end of the year, the consumer-facing disclosures (and the more detailed product-level disclosures) for labelled and non-labelled sustainability characteristics funds will be mainstream. The provision of relevant and comparable sustainable information has the potential for huge change.
