Industry Updates

FCA warns some ESG-labelled passives ‘completely misleading’ – report

Some ‘do not have an ESG focus’

Theo Andrew

Financial Conduct Authority FCA

The Financial Conduct Authority (FCA) has warned some passive funds with ESG-related names are misleading investors.

Speaking at the Association of the Luxembourg Fund Industry (ALFI) London conference last week, Mhairi Jackson, policy lead in asset management at the FCA, said the regulator was having to “push back” against some asset managers' attempts to label themselves as ESG, Reuters reported.

“We have seen some passive funds with ESG-related names that are actually just passive funds, they are just replicating normal indexes that do not have a ESG focus, which we deem to be completely misleading and something we have been pushing back on,” Jackson said.

"We have also seen some funds come through where the fund's proposed holdings differ very much from the objectives and the statements that they are holding out to be true.”

It comes following an influx of applications from funds looking to register as being ESG-related as the sector continues to grow.

The FCA is currently considering market feedback before it issues the Sustainable Disclosure Requirements (SDR) for investment funds.

Jackson added the regulator had been redefining the criteria for qualifying for an ESG label following its consultation, as well as its original requirements around marketing restrictions.

Following industry feedback earlier this year, the FCA said the rules had garnered “broad support” from the industry, despite some raising concerns most ETFs would find it “very difficult” to meet the labelling criteria

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