The Financial Conduct Authority (FCA) has released a review indicating that fund managers still have significant work to do to align with its forthcoming ESG ‘Guiding Principles’ regulation.
The review comes ahead of the final rules and guidance on Sustainability Disclosure Requirements (SDR) and investment labels regime, expected by the end of the year.
The FCA acknowledges that most fund management firms have made efforts to comply with expectations around ESG and sustainable funds in terms of design, delivery and disclosure. However, it emphasises the need for further improvement, particularly in providing clear and precise information to retail investors and consumers.
The review identified positive practices, such as the development of ESG and sustainability scoring systems and thorough due diligence on third-party data providers.
Despite these advancements, the FCA found that many firms fall short of its expectations.
Issues include products not consistently aligning with ESG and sustainability goals, especially when referenced in the fund's name, and some funds’ assets appearing inconsistent with their ESG objectives.
Additionally, the FCA noted a lack of explanation or context for key ESG information provided to clients and some stewardship approaches not meeting regulatory expectations.
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