UK Sustainability Regime Needs 12-Month Extension – PIMFA

Tom Burroughes Group Editor London 18 June 2024

UK Sustainability Regime Needs 12-Month Extension – PIMFA

At stake is the desire by the regulator to end “greenwashing” – a practice that unless dealt with, could undermine sustainability-driven investment by causing cynicism. However, getting a new regime in place is prompting complaints from the wealth sector in the UK.

The UK financial regulator’s final deadline for when new sustainability disclosure requirements (SDRs) take force – 2 December 2024 – should be delayed by 12 months because wealth managers haven’t got time to get ready, a business association says.

The proposed labelling system of SDRs for portfolio managers mostly mirror those introduced for asset managers in November 2023. They include: product labels to help consumers understand what their money is being used for naming and marketing requirements so that products can only be described as having positive outcomes on the environment and/or society when those claims can be backed up. 

The first stage of the new regime under the Financial Conduct Authority kicked in at the end of May. From 2 December, the regime becomes enforceable. 

“We are broadly supportive of the work the FCA is doing around SDR but the timing to agree the rules for portfolio management firms let alone implement them is not merely challenging, it is close to impossible,” Maja Erceg, senior policy advisor for EU and government affairs, PIMFA, said in a statement yesterday. “We have specific concerns around both the timeframe as well as labelling, which could cause confusion for retail investors, making it difficult for investors to understand why SDR applies to some funds but not others, such as overseas funds. This will make it challenging for consumers to make informed decisions about their investments."

The organisation responded to the FCA’s consultation on the new system. PIMFA said it may be unrealistic to think that the final SDR rules for portfolio management will be agreed by October. Even if they are, the final implementation deadline of 2 December does not provide adequate time for firms, it said. 

“Firms in our sector will find it challenging to continue to work with some smaller fund houses and have them represented in their portfolios because these have not met the SDR labelling standards yet and will not adopt the labels for another year or two,” PIMFA said. “This would unintentionally reduce choice of investments for portfolios and may affect end client outcomes.”

The organisation also asked the regulator to think again about including bespoke portfolios in the SDR regime. “Bespoke portfolios are not products, they are services, and more clarity is needed on how firms would be expected to apply a product label to a service-based investment approach,” PIMFA said. 

The body added that it wants the FCA to provide more clarity about including overseas funds – which are currently out of the scope of the SDR – and the role of portfolio manager when including them in portfolios. 

A factor behind the FCA’s new rules is a desire to kill the practice known as “greenwashing," i.e. making investments appear greener than they really are. There are worries that unless this is achieved, cynicism about standards will undermine support for ESG investing in general. 

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