FCA finds room for improvement in ESG fund disclosure

Posted on December 2, 2023 by Editor

The UK Financial Conduct Authority (FCA) has presented insights into how Authorised Fund Managers (AFMs) are aligning with regulatory expectations in their presentation of Environmental, Social, and Governance (ESG) information. The FCA’s evaluation assesses adherence to Guiding Principles provided in a letter sent to AFMs in July 2021.

The Guiding Principles emphasise the need for clear and accurate design, delivery, and disclosure of ESG and sustainability objectives in funds.

While the results of the review showed that AFMs generally demonstrated positive intent in embedding the Guiding Principles, the review highlighted instances where the disclosures failed to meet expectations. This resulted in challenges for investors to identify key information about ESG and sustainable investment funds, affecting their ability to make fully informed choices.

Several key issues surfaced, including the inadequate explanation or contextualisation of key sustainability data in disclosures and inconsistencies between firm-level and fund-level disclosures. The contribution of individual funds to firm-wide ESG and sustainability goals was often undisclosed, hindering transparency.

Looking ahead, the FCA draws attention to the proposed Sustainability Disclosure Requirements (SDR) and Investment Labels rules. AFMs are urged to assess the potential impact of these proposed regulations and take necessary actions for compliance.

Read the review in full here.

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