In a letter to the chairs of authorized fund managers, the Financial Conduct Authority (FCA) has set out expectations on the design, delivery, and disclosure of environmental, social, and governance (ESG) and sustainable investment funds. To reinforce its expectations, FCA developed a set of guiding principles to ensure that any ESG-related claims are clear and not misleading, both at the time of application and on an ongoing basis, to enable consumers to make informed choices. The guiding principles comprise an overarching principle on consistency and three supporting principles that focus on design, delivery, and disclosure. Each principle is accompanied by a set of "key considerations," which add clarity.
The overarching principle states that a fund’s ESG or sustainability focus should be reflected consistently in its design, delivery, and disclosure. The focus on ESG or sustainability should be reflected consistently in the name, the stated objectives, the documented investment policy and strategy, and the holdings. FCA expects authorized investment funds pursuing a responsible or sustainable investment strategy and those that claim to pursue ESG or sustainability characteristics, themes, or outcomes to consider the overarching principle, supporting principles, and key considerations. The other principles include:
- The design of responsible or sustainable investment funds and disclosure of key design elements in fund documentation. References to ESG (or related terms) in a fund’s name, financial promotions, or fund documentation should fairly reflect the materiality of ESG/sustainability considerations to the objectives and/or investment policy and strategy of the fund.
- The delivery of ESG investment funds and ongoing monitoring of holdings. The resources (including skills, experience, technology, research, data, and analytical tools) that a firm applies in pursuit of a fund’s stated ESG objectives should be appropriate. The way that a fund’s ESG investment strategy is implemented, and the profile of its holdings, should be consistent with its disclosed objectives on an ongoing basis.
- Pre-contractual and ongoing periodic disclosures on responsible or sustainable investment funds should be easily available to consumers and contain information that helps them make investment decisions. ESG or sustainability-related information in a key investor information document should be easily available, clear, succinct, and comprehensible, avoiding the use of jargon and technical terms. Funds should disclose information to enable consumers to make an informed judgment about the merits of investing. Periodic fund disclosures should include evaluation against stated ESG or sustainability characteristics, themes, or outcomes as well as the evidence of actions taken in pursuit of the fund’s stated aims.
The guiding principles are relevant where an FCA authorized investment fund pursues a responsible or sustainable investment strategy and claims to pursue sustainability characteristics, themes, or outcomes. These principles are targeted at funds that make specific ESG-related claims, not those that integrate ESG considerations into mainstream investment processes. The guiding principles complement the recent FCA proposals to implement climate-related disclosure rules for asset managers, life insurers, and FCA-regulated pension schemes. The guiding principles have been developed with reference to the existing statutory requirements and the existing Handbook rules and guidance.
Keywords: Europe, UK, Securities, ESG, Sustainable Investment Funds, Climate Change Risk, Sustainable Finance, Guiding Principles, FCA
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
Previous ArticleAPRA Further Extends Support for Borrowers Impacted by COVID-19
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.
The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.
The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.
The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)
The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).
The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.
The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.
The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.
The European Central Bank (ECB) published a paper that examines how credit rating agencies accepted by the Eurosystem, as part of the Eurosystem Credit Assessment Framework (ECAF)
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.