Responsible Investor wrote about the response by UK investors to the country’s new Sustainability Disclosure Requirements (SDR) that mandates sustainability disclosures and labels for investment products. By December 2, funds using the words “impact” or “sustainable” in their names had to either remove those words from the name or change them to comply with SDR label requirements. With the popularity of ESG investing, one would expect an overwhelming response – but that isn’t what happened:
“The regulator does not sign off on use of the label itself, but must be notified when an asset manager plans to use one, and has to approve changes to funds such as renaming or prospectus alterations which are made to align with label criteria. Responsible Investor understands that 30 funds have notified the FCA that they will use a label…
‘In addition to the uncertain investor demand for labels, asset managers have been discouraged by the strict criteria set by the regulator,’ [Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics] said. Indeed, a flurry of managers have dropped terms from fund names instead of adopting a label, including Abrdn, BlackRock and Stewart Investors.
Bioy expects more labels to be approved in 2025. ‘But I doubt we will see more than 150-200 labelled funds by this time next year,” she said. ‘”
I wouldn’t read too much into this initial low response rate. There were start up glitches by the Financial Conduct Authority (FCA) and the investment firms are only beginning their learning curve. Indeed, the FCA already published an expanded set of examples of how funds can comply (here). Funds that removed the labels may well get back into the game after the regulatory process has stabilized and initial questions/uncertainties are cleared up. If, as Bioy predicts, we see more than 100 official sustainability funds next year, I’d call that successful.
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