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FCA warns asset managers on poor ESG fund launch applications

esg_investingUK watchdog the Financial Conduct Authority (FCA) has warned fund managers that their “poor quality” ESG fund applications may impact consumers and that the regulator is looking for improvement.

According to the regulator, many applications within the high volume it receives fall below expectations and existing funds also face challenges to do with ESG-related data metrics.

ESG and sustainable funds are the fastest-growing market segment in Europe, the FCA noted, with consumers placing significant value on ESG-related funds.

“Against this backdrop, we are concerned by the number of poor-quality fund applications we have seen and the impact this may have on consumers. This must improve,” the FCA said in a letter to the chairs of authorised fund managers.

The watchdog called for “material improvements” and set out its expectations on the “design, delivery and disclosure” of ESG and sustainable investment funds. 

“It is therefore essential that funds marketed with a sustainability and ESG focus describe their investment strategies clearly and any assertions made about their goals are reasonable and substantiated,” wrote Nick Miller, head of department, asset management supervision, at the FCA.

Many applications for these kinds of funds are poorly drafted and often contain claims that do not bear any scrutiny, Miller added. 

Going forward, Miller said the FCA expects “clear and accurate” ongoing disclosures to consumers where funds make ESG-related claims.

“We want to see funds deliver on their stated objectives and/or strategy.” 

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