Alicia Kedzierski, head of sustainable finance at the FCA, told delegates at the UKSIF Good Money Week conference 10 labels had been awarded as of yesterday (October 2) and many more were in the pipeline.

Though she could not say how many labels the regulator expects to authorise before the final deadline, which is now April 2025, she said the number was in line with expectations and that more funds would be authorised over time, with shifts in the popularity of particular labels also anticipated.

She said: “We introduced SDR and the labelling regime, really to help consumers. And it is about reducing greenwashing, better information in the market and building trust.

“It is still the early days of SDR implementation…The pipeline is where we expected it to be. I say healthy. It is a lot of firms wanting and trying to think about using these labels.”

She added: “The whole regulation tries to set a higher standard, and it aims to raise the bar. We never expected that all funds would get a label. That was not the point.

“We do expect that there will be a significant number of them, and we also expect that it will grow over time, and the number of labels in different categories will shift.”

Firms originally had until December to get their funds authorised for one of four labels created by the FCA. This deadline was extended by four months in September for those who have already applied for a label.

Under the SDR rules only products with a label can use certain terms such as sustainable and impact in their names. Others can still use the terms ESG and green but only if they meet certain criteria.

Kedzierski said the extension was a reflection of the time it took firms to become authorised.

“We saw really, really good progress, but it was clear that it was taking longer than expected, and we wanted to make sure that those applying in good faith were given that extra time to be able to meet the requirements,” she said.

This process should help fund managers and the financial advisers they work with understand the outcomes of the funds and allow them to better communicate those to their clients, she said.

Difficult process

But applying has not been easy, according to asset managers, who shared their experiences in a panel discussion earlier in the conference.

They agreed the new rules were raising the bar for sustainable investing and that more labeled funds would enter the market over time.

But they said the fact it was early days for the legislation, and guidance was broad, made it difficult to gauge what the regulator was looking for.

“I found from the application process that a lot of the FCA’s questions and pushbacks have come from them not fully understanding what a fund is trying to achieve, potentially because this hasn’t been fully articulated,” said Amelia Gaston, senior responsible investment analyst at Edentree.

“And I think the way to interpret this desire from the FCA to, you know, completely understand what a fund’s objective is and how the fund is meeting that objective is it’s their way of getting comfortable that a fund will then provide that clarity for the end consumer.”

She said her firm had learned a lot through the process, especially in terms of how to communicate sustainability objectives to clients without jargon and about explaining the ‘why’ behind the investment process.

“Something we found was that SDR didn’t actually cause our fundamental investment process to change,” she added.

“What it did prompt us to do was think a little bit more about why we chose to do things in a certain way, why we conduct our analysis in a certain way, and make that really clear and disclose that explicitly in the disclosures.”

Stuart Burnside, head of product governance and ESG product at M&G Investments, said more industry engagement would lead to a better market down the line.

“What is the case with all of the FCA rules is there is a level below the rules that is not in the handbook, which is how they implement them, and how they discuss them, the checklists that the case officers have,” he said.

“That is all stuff that you don’t get to see as an outsider. But as you become more seasoned… you get a sense for those rules.

“With [SDR], because it’s very new, you don’t yet know that, unless you’ve suddenly solved it. So you’re starting to have to navigate that now.”

He said he’s had lots of discussions with the FCA since first handing in his application in April and observed that while the rules had stayed the same, the interpretations had started to change.

These industry engagements will ultimately lead to a more workable environment for more funds, leading to more label authorisations, he said.

 

 

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