Further support for advisers
Ultimately, the SDR should bring about greater transparency and address the central problem over greenwashing.
However, the right balance needs to be struck between protecting consumers versus having a coherent articulation of the proposition that end clients can understand.
Advisers may potentially be put off by the complexity of language or technical definitions.
Clearer examples of what constitutes greenwashing are also likely to be helpful for advisers.
Moreover, many asset managers themselves are still in the process of setting up the right internal legal and investment frameworks to adhere to the new regulations.
For example, the FCA has not prescribed any KPIs for firms when it comes to justifying a label, and instead has left it up to firms to use what they believe are the most relevant KPIs specific to the sustainability objectives for their products.
Similar to asset managers, DFM or MPS providers are also having to greatly expand their documentation and evidence their investment methodology before submitting to the FCA.
However, this in turn is leading to many firms adopting a ‘wait and see’ approach before applying.
The FCA has also allowed an extension for adopting the labels until April 2 2025, but only for exceptional circumstances where a firm has applied for a label by October 1 this year, and the fund intends to use a label or has one of the three sustainability terms in its fund name and is planning to carry on using or changing those terms.
In light of this, the overall message for advisers is to stay vigilant and keep up to date with product providers over the direction of travel for their underlying funds.
In addition, the FCA itself is cognisant of the challenges for advisers and has subsequently set up a working group, the advisers' sustainability group, which aims to provide support for advisers over sustainable investments.
It is headed up by chair Daniel Godfrey and vice-chair Julia Dreblow with the aim to develop good practice guidance for financial advisers.
According to the group’s website, the ASG is itself formed of smaller working groups such as the good practice working group, and education & training working group.
For instance, the good practice working group is in the process of developing recommendations for how advisers approach an initial conversation or form filling with a client, or how they can have conversations with clients over ethical and moral views about investments and the pros and cons of exclusions versus stewardship.
