Last week the Financial Conduct Authority (FCA) issued new guidance (FG24/3) on its anti-greenwashing rule which comes into effect on 31 May 2024. The rule requires all FCA-authorised firms to be able to substantiate any sustainability-related claims when communicating with clients about products and services, and to ensure these claims are “fair, clear and not misleading”.
The anti-greenwashing rule is part of the new Sustainability Disclosure Requirements (SDR) and investment labels regime, finalised in November 2023.
The Association of Investment Companies (AIC) has collated comments from investment trusts on how SDR and the anti-greenwashing rule will impact them and the wider industry.
The anti-greenwashing rule
Rob Guest, Co-Lead Fund Manager of Foresight Sustainable Forestry Company, said: “We are in favour of SDR’s anti-greenwashing rule and see this as an encouraging signal that investors are becoming more sophisticated in their understanding of this area and are seeking assurances of accuracy. As the rule becomes more established over time, it will have the positive effect of increasing stakeholder confidence in sustainability claims and hopefully encourage more corporates to adopt robust sustainability frameworks as part of their standard reporting procedures. The framework will benefit Foresight and the funds it manages which are invested in the renewable energy transition and the fight against climate change and biodiversity loss, and this will become even more apparent with a comparable and standardised way to measure sustainability performance.”
Eleanor Fraser-Smith, Head of Sustainability at Victory Hill Capital Partners, which manages VH Global Sustainable Energy Opportunities, said: “There has been a proliferation of disclosure regulations in recent years which has led to more transparency. However, many of these disclosures are complex and technical, not very accessible and, if they are read, have done little to build trust in the sector. ESG teams, comms teams, PR teams, IR teams often don’t align on ESG communications. Additionally, in a world of miscommunication and social media, firms cannot control the narrative and transparency commitments can backfire. That’s why regulations that focus on fair, clear and not misleading communications are vital.”
Anjali Berdia, Sustainability Manager at SDCL Energy Efficiency Income, said: “SDCL is supportive of SDR’s anti-greenwashing rule. It is important for organisations to make sustainability claims that are clear, fair and not misleading, especially at a time when contribution to climate change mitigation and adaptation is vital.
“In terms of the impacts the rule will have, we agree with the FCA’s finalised handbook guidance on the rule, which states that the rule does not introduce a new requirement as providers should already be ensuring their claims are ‘fair, clear and not misleading’ under existing FCA requirements. Therefore, we do not believe the rule should lead to a significant change in the marketing materials firms currently produce, but instead result in firmer controls and governance to ensure such materials are published in line with the rule.”
Isabelle Smith, Head of ESG at Atrato Partners, which manages Atrato Onsite Energy, said: “Atrato Onsite Energy supports the introduction of the anti-greenwashing rule and the FCA’s efforts to ensure that sustainability-related claims are fair, clear, and not misleading. We agree with the FCA’s finding that current terminology used to describe different types of sustainable investment products can be unclear, inconsistently applied and misunderstood.”
Ed Mountney, Co-Lead Investment Manager for JLEN Environmental Assets Group, said: “The introduction of a robust framework establishing parameters for a reliable sustainability reporting regime is a positive development for the industry overall – as well as for investors who will be able to assess different sustainable investment vehicles using meaningful ‘like for like’ criteria. The ability of investors to make informed decisions is vital for confidence in the sector to continue expanding, so the anti-greenwashing rule will provide an important safeguard against companies claiming sustainability credentials without providing clear and demonstrable evidence.”
Is your investment trust considering claiming a label?
Rob Guest, Co-Lead Fund Manager of Foresight Sustainable Forestry Company, said: “We can confirm it is currently under consideration.”
Isabelle Smith, Head of ESG at Atrato Partners, which manages Atrato Onsite Energy, said: “We are currently exploring which of the FCA’s four investment labels best represents our fund’s sustainability objectives and approach, and what changes we may need to make to meet the associated qualifying criteria.”
Ed Mountney, Co-Lead Investment Manager for JLEN Environmental Assets Group, said: “As a non-UK domiciled fund, JLEN is not currently able to obtain accreditation under the SDR regime. However, as a fund which adheres voluntarily to many best practice reporting standards, we are currently exploring ways in which we can align with the regime’s requirements in order to establish equivalence to a specific SDR sustainability label.”
Eleanor Fraser-Smith, Head of Sustainability at Victory Hill Capital Partners, which manages VH Global Sustainable Energy Opportunities (GSEO), said: “GSEO is looking at appropriate labels as it invests in sustainable energy infrastructure. The fund has an objective of accelerating the energy transition through its investment strategy, so we are looking at how the investment manager’s internal processes and external communications meet SDR requirements.”
SDR and the labelling regime
Eleanor Fraser-Smith, Head of Sustainability at Victory Hill Capital Partners, which manages VH Global Sustainable Energy Opportunities, said: “The world is decarbonising and in transition, and many companies are working to facilitate this. The SDR and labelling regimes will help identify these companies but at the same time give flexibility on how they deliver the impact. This is important when operating globally where energy transition context and approach differs. The focus on intentions and outcomes is important.”
Anjali Berdia, Sustainability Manager at SDCL Energy Efficiency Income, said: “The SDR labelling regime provides firms with more options for how funds can be classified than other labelling schemes, like SFDR. This can be seen both positively and negatively. On one hand, the ability to choose from four labels ensures a firm like SDCL can select a label that most closely aligns with the sustainability characteristics of the fund. It can also be used as a way to highlight specific sustainability attributes of that fund. On the other hand, too many options could make it difficult for investors to compare the sustainability characteristics of funds with different labels.”
Ed Mountney, Co-Lead Investment Manager for JLEN Environmental Assets Group, said: “It will be particularly interesting to see how the framework evolves over time, following feedback from investors and industry. As the reporting rules gather momentum, the long-term effect is likely to be positive for the future expansion and credibility of the sustainable investment sector overall.”
Rob Guest, Co-Lead Fund Manager of Foresight Sustainable Forestry Company, said: “The labelling regime is an important quality control mechanism to support the anti-greenwashing rule, ensuring that businesses cannot simply adopt sustainable terminology in their marketing materials without supporting evidence to back their claims up. The labelling will be hugely helpful in improving investor and consumer understanding and confidence in this area overall, giving rise to a common vernacular for the discussion and comparison of sustainable investment options on a like-for-like basis.”
Challenges and opportunities
Rob Guest, Co-Lead Fund Manager of Foresight Sustainable Forestry Company, said: “Any new regulation can bring challenges in terms of ensuring it is implemented in a way which is effective but also understands how it interacts with existing sustainability credentials. For example, the EU Sustainable Finance Disclosure Regulation (SFDR), which Foresight Sustainable Forestry (FSF) has already made the relevant disclosures for, being an Article 9 product. There is cost and time involved in this process as both internal and external resource is usually required (such as legal support) to adopt new labelling, produce the necessary communication materials to keep stakeholders informed and ensure that audiences are educated enough to understand the new labelling in the first place. We expect that the anti-greenwashing rule and labelling regime will be of particular benefit to investment vehicles dedicated specifically to sustainable investment, such as Foresight Sustainable Forestry Company, demonstrating our robust sustainability credentials to their full advantage and helping our investment thesis to become more commonly understood.”
Eleanor Fraser-Smith, Head of Sustainability at Victory Hill Capital Partners, which manages VH Global Sustainable Energy Opportunities, said: “An opportunity in the SDR regulation is the recognition of transition (“improver”) strategies. The whole economy needs to decarbonise. By allowing for improvements, rather than focusing on a limited number of sectors, it enables broader economy participation and removes focus from unhelpful divestment or exclusion policies. However, a challenge is the reporting burden and how the regulation scans with other regulations. There is little overlap with SFDR requirements for example, but the ability to reference other non-financial reporting like TCFD reports will be welcome.”
Anjali Berdia, Sustainability Manager at SDCL Energy Efficiency Income, said: “SDR gives SDCL and its funds under management another avenue to highlight the sustainability focus of our funds and further distinguish ourselves in the marketplace.”
