Risk and Sustainability
The FCA has released its long-awaited consultation paper on sustainability disclosures for investments, including sustainability labels for funds. The new rules are intended to “help consumers navigate an increasingly complex investment product landscape, protect them from greenwashing, and rebuild trust.”
A key part of the paper is the introduction of sustainability labels for funds. There is a deliberate ‘high bar’ for what counts as sustainable. The labels identify funds that have a high degree of sustainable investments (“sustainable focus”); an objective of improving the sustainability of the underlying investments (“sustainable improvers”); or that have a direct objective to achieve positive contributions to sustainability (“sustainable impact”).
There is a fairly long lead time, with final rules expected in the middle of next year for implementation in 2024. While these proposed rules put obligations on fund managers, providers, and distributors to publish information on their funds, advisers should also expect to see changes in suitability requirements.
“We are exploring how to introduce rules for financial advisers aimed at confirming that they should take sustainability matters into account in their investment advice and understand investors’ preferences on sustainability to ensure their advice is suitable.”
FCA
Advisers will need to gauge each customer’s attitude to sustainability and there are there are strong parallels with attitude to risk. Customers will vary in their requirements and preferences, but most will not be comfortable with our industry’s jargon and will need help to articulate their needs. Using a well-designed psychometric questionnaire to understand these sustainability preferences will allow the customer and adviser to have a structured conversation on the issues, and to clearly establish and document the customer’s requirements.
We are working with several of our clients to implement attitude to sustainability into their advice process. Please let us know if you would like to discuss how to incorporate sustainability into your process, and the role our tools can play.