FCA’s SDR marketing delay: “More time is good”

Fund selectors agreed that delays in marketing the Financial Conduct Authority’s (FCA) Sustainable Disclosure Requirements (SDR) are not a problem for the industry.

Speaking at ETF streams At the 2024 ESG ETFs Workshop, fund selectors agreed that the extended timeframe for labeling ESG funds allows more time to refine their application and meet requirements more effectively.

The discussion comes against the backdrop of growing industry concerns about the low uptake of the four SDR investment designations: “sustainability focus”, “sustainability enhancer”, “sustainability impact” and “mixed sustainability goals”.

Paul Dennis, investment director at Holden and Partners, said: “The general consensus is that more time is beneficial and necessary.”

“The time frame originally stated was probably too short – not a misunderstanding, but perhaps an underestimate of how much time this will actually take.

Paris Jordan, CFA, head of responsible investing at Charles Stanley, added: “When it comes to what we choose in terms of labeling, this will not impact our processes as we have not seen significant uptake of labeling.

“We have been conducting fundamental research for ETFs, index funds and many other forms of investment for a long time. A bill from the Legislature will not force us into a full review in just a few months.”

Last year the Financial Conduct Authority (FCA) announced it would refine the criteria of products that could qualify for a label, introducing the fourth category – Sustainability Mixed Goals – later this year.

Passive funds in the UK are expected to be “significantly under-represented” under SDRs, accounting for just 7% of designated funds.

Additionally, the ambiguity of labels has caused confusion in the industry. A notable example is BlackRock’s recently launched climate change ETFs, which have been assigned both Focus and Improvers labels by fund selectors.

A research report from FE fundinfo found that almost half of UK sustainable funds affected by the Financial Conduct Authority (FCA) Sustainable Disclosure Requirements (SDR) naming rules will be ETFs.