When it comes to engagement with SDR and labelled funds, right now, there is a worrying disconnect between what manufacturers think they are sending down the chain and what actually lands in front of clients, say Elly Dowding and Lee Coates OBE, ESG Accord and the Accord Initiative.
As COP30 wrapped up in Belém, the headlines were predictable: no dramatic fossil fuel phase-out, but a package of incremental advances, more roadmaps and more pledges. The commentary that cut through the noise, for us, was Lord Stern’s balanced assessment – neither doom-laden nor cheerleading, just clear-eyed about what’s implied by the Paris Agreement whether or not anyone writes “phase-out” in 72-point font.
That framing matters for advisers. The Paris Agreement already implies a transition away from high-carbon activities. Just as, closer to home, the FCA’s rules already imply that firms must take non-financial objectives seriously: COBS requires firms to obtain all necessary information to understand a client’s investment objectives and the purposes of the investment. We believe that this cannot be done without knowing a client’s views on conventional investing, ESG, sustainability and values-related/ethical investing.
The law and regulation are further along this road than much of the market wants to admit. Fiduciary duty, for example, is being actively reinterpreted in the context of climate and nature risks. Recent work from the Net Zero Lawyers Alliance urges trustees and asset owners to treat these as core financial risks, not optional extras for the marketing deck. That is a profound shift: the question is not “may we consider sustainability?” but increasingly “how can we justify not doing so?”
At exactly the same time, data points from the real world are impossible to ignore. The Morgan Stanley “Sustainable Signals” report suggests nearly 90% of global individual investors are interested in achieving market-rate returns and positive social and environmental outcomes. Client appetite is not the blocker. So where is the blockage?
SDR: the regime that can’t work without you
The recent UKSIF–PwC report on SDR implementation should be compulsory reading for every advice firm board. The message, we think, is blunt: the long-term success of SDR will not be decided by asset managers or regulators alone; it hinges on distributors and advisers.
Right now, advisers are at risk of being painted as the “missing link”. Engagement with SDR and labelled funds has been limited, and there is a worrying disconnect between what manufacturers think they are sending down the chain and what actually lands in front of clients.
The report also flags the danger of “downstream distribution” where fund messages are being diluted or reshaped once they leave the manager. In plain English: if advisers don’t properly understand what a label genuinely represents, it becomes very easy to overstate, understate or simply misstate what a fund is really doing. That’s not just a reputational risk; it’s a live issue under the anti-greenwashing rule, Consumer Duty and PROD.
And we need to be honest: under PROD, manufacturers are not off the hook either. They must take reasonable steps to ensure the distribution strategy is consistent with the target market and that products are distributed accordingly. That only works if information flows both ways and the advice community is treated and acts as a critical, informed partner – not a black box sitting between KIID and client.
When “sustainable” doesn’t really mean sustainable
Zoom out beyond the scope of the SDR labels alone and the pattern becomes more troubling. The Gosling, Edmans and Jenter paper, Sustainable Investing in Practice: Objectives, Constraints and Limits to Impact, surveys over 500 portfolio managers, both “sustainable” and conventional. Strip away the marketing and the message is stark: for most so-called sustainable managers, financial returns still dominate in practice. Sustainability is often subordinated to firm policy, reputation and benchmark constraints.
One finding jumped out for us: 72% of managers are driven more by firm policy and reputation than by adviser or client demand. That means the sustainability profile of a fund is often imposed top-down by the manufacturer, not driven bottom-up from real client preferences.
We see two big risks for advisers:
- Values dissonance where a product is sold as aligning with a client’s sustainability values, but in reality financial metrics are always prioritised ahead of any sustainability outcome, with minimal transparency about trade-offs.
- Illusion of choice is a shelf full of “different” sustainable funds that, under the bonnet, behave in remarkably similar ways, with limited real-world impact and very similar holdings.
Under Consumer Duty, this should set alarm bells ringing. Firms are required to ensure products meet the customer’s needs, characteristics and objectives. That is hard to evidence if the disclosure chain is foggy, and if the client’s sustainability preferences were never properly explored in the first place.
What’s really broken: communication at every handoff
Put these threads together and the picture gets uncomfortable. We appear to have a communication failure at every handoff point in the value chain:
- Clients are not always asked consistently and systematically about their sustainability and values-based preferences.
- Advisers cannot reliably match products to preferences if labels and disclosures are partial, inconsistent or overly generic.
- Manufacturers are worried about downstream distribution risk and message dilution.
- Regulators are layering expectations (SDR, SFDR, OFR, anti-greenwashing, Consumer Duty) that presume a clean flow of information that simply does not exist today.
And yet, because fund flows continue, there is a dangerous sense that “the system is working”. Our view is that this is a Consumer Duty blind spot. It looks as though the market is functioning, but without clear preference capture and equally clear product communications, good outcomes are at best accidental.
2026: the year of “Know Your Client – Fully”
So what does a credible fix look like? We think it has to be two-sided:
- Manufacturers – whether UK funds, overseas funds, insurance products or MPS all need to spell out, in plain language: The strategy and any theory of change, the constraints (data, benchmarks, mandates), the trade-offs between financial return, risk and sustainability outcomes. Until that is on the table, advisers cannot realistically align products with nuanced client preferences.
- Advisers and distributors must move beyond treating sustainability and client preferences as a niche add-on. Preference discovery has to become part of core suitability. This means asking every client, every time, whether their preferences are conventional, sustainable or explicitly values-based. And, it includes thinking about vulnerability triggers and protected characteristics in a joined-up way, not as a separate tick-box exercise.
That’s why our own focus for 2026 is on what we’re calling our “Know Your Client – Fully” campaign and toolkit. We provide practical templates and processes to help firms systematically capture, document and use client preferences, integrated with Consumer Duty and SDR expectations.
We’re also evolving. From January 2026, ESG Accord will become In Accord, bringing our Accord Initiative, Accord Academy, Accord Consulting and Accord Talks under a single banner. The name reflects our mission: to connect the whole value chain – client, adviser, manufacturer and regulator – so that intentions, preferences and products are genuinely in accord.
A call to action
For adviser firms, the question now is simple: if the FCA walked in tomorrow and asked you to evidence how you identify and act on client preferences across your book, could you do it confidently and consistently? If the answer is “not yet”, 2026 is your window to fix that, on your own terms, before somebody else defines “good” for you.
We invite you to listen to Accord Talks, where we share real conversations on sustainability, compliance, and the future of advice. Available on Spotify, Apple, Amazon and Pocket Casts.
Elly Dowding and Lee Coates OBE are the directors at ESG Accord and the Accord Initiative, which provides free-to-access education, resources, and compliance support to the financial advice sector on sustainability and Consumer Duty.
Main image: brett-jordan-ulqQgJRGVNc-unsplash
