SEP 2021 IAN LYALL
The FCA's recently issued warning to fund managers about poor quality ESG fund applications can be seen as a bit of greenwashing wake-up call.
In a letter to chairs of authorised fund managers, Nick Miller, Head of Department of the FCA's Asset Management Supervision said:
"We are concerned by the number of poor-quality fund applications we have seen and the impact this may have on consumers. This must improve."
The FCA said 'a sizeable percentage' of the applications it receives have significant issues with ESG-related data metrics.
In other words, funds are making applications without proper documentary evidence to back up their claims and "applications for these kinds of funds are poorly drafted and often contain claims that do not bear any scrutiny."
Going forward, Miller said the FCA expects “clear and accurate” ongoing disclosures to consumers where funds make ESG-related claims:
"We want to see funds deliver on their stated objectives and/or strategy."
"It is essential that funds marketed with a sustainability and ESG focus describe their investment strategies clearly and any assertions made about their goals are reasonable and substantiated."
This is a clear call for funds to employ a product governance system such as Prodigy with all the "proper documentary evidence" at its heart - as a single, locked-down repository of 'the truth' - including of course, all ESG-related data metrics.
ESG and sustainable funds are the fastest-growing market segment in Europe and consumers place significant value on ESG-related funds, but as the FCA has pointed out, consumer must have a clearer understanding of what they are getting.
For investment funds, governance tools like Prodigy are now 'must have' tools for clarifying investment strategies, substantiating assertions and providing the detailed, cross-enterprise data metrics now demanded by the regulator.
Find out more about Prodigy here: https://www.prodigyproduct.com/