EQ Investors (EQ) has been active in the sustainable investment space for more than a decade. In that time innovation and ’best practice’ has primarily been driven by industry participants. EQ has been supportive of greater regulatory interest in sustainable finance, aiming to support well-intentioned client capital flow into ambitious, suitable investment solutions that best match their preferences, as well as improve disclosure and transparency in the whole market.

Key components of the published paper include:

• Four labels for different sustainable funds, and associated qualifying criteria for each: Sustainability Focus, Sustainability Improvers, Sustainability Impact, Sustainability Mixed.
• Attached to each label is an expectation of disclosures, including a version that summarises a fund’s sustainability characteristics for retail consumers.
• Naming and marketing rules that restrict the use of the label-terms “sustainable” and “impact” to funds with labels. Any funds that use sustainably-linked language (ESG, ethical, climate, Earth…) but do not hold labels need to disclose this to consumers clearly and explain why that is justified.
• A general anti-greenwashing rule (coming into force May 2024) that applies to all FCA-authorised firms who make sustainability-related claims about products and services.

It is clear and encouraging that stakeholder feedback has been extensively integrated into the proposed changes by the FCA since the initial consultation. EQ’s feedback has been widely reflected in the policy proposal. Our team has been digesting the new final rules and wanted to share key take-aways for advisers working with EQ:

• Portfolio Management Services (by DFMs like EQ Investors) are out-of-scope of the policy proposal. EQ will feedback to a portfolio-focused consultation starting in January 2024 to ensure the new rules work as effectively as possible. We have direct contact with the FCA representatives and are hopeful we can build on our past collaboration.
• Financial advisers are considered as distributers, but not explicitly covered by the policy statement beyond their responsibility to provide the new product disclosures to their retail clients. We believe the FCA has already suggested that there is an existing responsibility within other regulations to match advice and adhere to client sustainability preferences. The most relevant here is already in place in Consumer Duty. The labels and disclosures are seen to help with this existing responsibility.
• As we understand it, the planned adviser-focused work by the FCA will thus seek to clarify implementation rather than introduce new rules. For those advisers that are interested in making their mark on SDR implementation and helping influence educational resources, we would suggest it opens the door for you to collaborate directly with the regulator. Aside from this, advisers are expected to comply with the anti-greenwash rules, which should be a focus for their client communications.

EQ is already in discussions with all in-scope UK-domiciled funds and asset managers to align to the most suitable label in preparation of portfolio management services becoming in scope, as well as assessing any implications on our investable universe. We will ensure to share any material updates with you in due course.