On 19 July 2021, the FCA published a Dear CEO letter which it had sent to authorised fund managers setting out its expectations on the design, delivery and disclosure of environmental, social and governance (ESG) and sustainable investment funds. The FCA notes that it receives a high volume of applications for the authorisation of funds with a sustainable focus. However, many of these applications are poor-quality and fall below the regulator’s expectations. The FCA also makes clear that it expects clear and accurate ongoing disclosures to consumers where funds make ESG-related claims.
The FCA also sets out guiding principles that explains its expectations in this area. The guiding principles are there to ensure that any ESG-related claims are clear and not misleading, both at the time of application and on an ongoing basis, so that consumers can make informed choices. The guiding principles are relevant where an FCA authorised investment fund pursues a responsible or sustainable investment strategy and claims to pursue sustainability characteristics, themes or outcomes. These principles are targeted at funds that make specific ESG-related claims, not those that integrate ESG considerations into mainstream investment processes. The guiding principles complement the FCA’s recent proposals to implement climate-related disclosure rules for asset managers, life insurers and FCA-regulated pension schemes.