Last week Ethical Futures was given the opportunity to share their thoughts with the FCA regarding ESG.
The increasing public awareness of climate change and the role of finance has led to a rapid growth in sustainable and ESG funds (Environmental, Social & Governance). Recent years have seen fast growth in sustainable fund assets and this isn’t just a passing fad. The Pricewaterhouse Coopers' report: The growth opportunity of the century suggests that we could see 57% of European mutual fund assets by 2025 in ESG focused funds; a growth rate of 28.8%.
Along with such rapid growth in the market and an increasing flurry of new fund registrations, there has been an ever increasing taxonomy of descriptions and styles of investment that can prove baffling to the consumer. Given this developing situation, the Financial Conduct Authority (FCA) has taken note and is keen to ensure that consumers have access to green financial products and services that meet their needs and preferences, and receive appropriate information and advice to support their investment decisions.
Building upon work already carried out as part of the Policy Statement on the Asset Management Market Study (PS19/14), and speeches by Richard Monks and Nikhil Rathi in 2020; the FCA have set out five areas that they feel may help to provide guiding principles in the development of the sector;
- Consistency in messaging and approach.
- A product’s ESG focus should be clearly and fairly reflected in its objectives.
- A product’s strategy should set out clearly how its sustainability objectives will be met.
- There should ongoing basis reporting on performance against its sustainability objectives.
- Funds should assure the quality of ESG data used.
Julian Parrott of Ethical Futures was pleased to join a Round Table event held by the FCA on 4th February to feedback and contribute to the development of the proposed guiding principles. He joined with other industry experts from the world of fund management, consumer protection, trade bodies and research to hear further details about the FCA ideas and the research that had been commissioned to help develop them. The very engaged participants were able to share experience, knowledge and ideas on the practical implementation of such principles. Work is on-going but we look forward to having further dialogue and seeing positive outcomes from this work.
Julian said “I think it’s really important to be able to participate and share ideas in these forums. The industry tends to develop its own language and jargon and that can exclude the retail customers that the investment is intended for. At Ethical Futures, we often act as interpreter for our clients as to what funds will meet their needs – but if we can contribute to these discussions, then we can help to simplify the language and improve communication of fund purpose. Over time, this should reduce the risk or perception of greenwashing that would damage this very important sector.”