In recent years, the buzz around sustainable investing has grown louder. Investors are increasingly seeking options that align with their values, focusing on businesses that contribute positively to the planet and society.
However, as demand rises, so does the risk of greenwashing. This is where companies make misleading claims about their environmental or social impact. This makes it harder for investors to know if their money truly supports sustainability.
To combat this issue, the Financial Conduct Authority (FCA) in the UK has introduced the Sustainability Disclosure Requirements (SDR).
These measures are designed to provide investors with clearer, more reliable information about sustainable investment options, empowering them to make better choices.
Four distinct labels designed to make it easier for investors to understand different sustainable investments
What are the Sustainability Disclosure Requirements?
The SDR brings new rules to the table, aiming to ensure businesses are more transparent about their sustainability claims. The two main components of these requirements are:
1. The anti-greenwashing rule
- This rule requires that any sustainability-related claims be truthful, clear, and backed by evidence.
- Businesses must avoid vague or misleading statements, ensuring investors can trust what they’re being told about a fund’s sustainability credentials.
2. The sustainable investment labels
There are four distinct labels designed to make it easier for investors to understand the purpose of different sustainable investments
- Sustainability Focus: These are funds that prioritise assets that meet high sustainability standards.
- Sustainability Improvers: These are funds that target investments with the potential to improve their sustainability profile.
- Sustainability Impact: These funds aim for measurable positive outcomes for people or the planet.
- Sustainability Mixed Goals: These funds combine elements of the above categories.
Why do these changes matter to you?
The introduction of these measures seek to benefits investors by:
- Cutting through the noise: With standardised labels, you’ll no longer need to sift through dense documentation to understand a fund’s goals.
- Enhancing confidence: Clear rules against greenwashing mean you can invest with more trust in the claims made by fund managers.
- Encouraging transparency: Annual updates from funds with sustainable labels will show how they’re progressing toward their stated objectives, giving you the power to track their impact.
How the industry is responding?
If you want your investments to reflect your sustainability goals, these new measures make it easier than ever. By looking for funds with FCA-approved labels, you can choose options that align with your values and track their performance.
While many fund managers have adopted sustainability labels, others have not. However, this doesn’t necessarily mean their investments don’t align with your values.
A fund might lack a label because the manager has chosen not to pursue one, or because it doesn’t meet the specific criteria required. In either case, you’ll still have access to a clear explanation detailing why the label wasn’t applied. Additionally, fund managers provide straightforward information about their investments, enabling you to assess whether they align with your sustainability goals.
A win for investors and the planet
The FCA’s Sustainability Disclosure Requirements are a game-changer for sustainable investing. They intend to bring clarity, enforce accountability, and empower investors like you to make more informed decisions. With these tools, your money can truly become a force for good – helping to build a better future for society and the environment.
However, remember, like any investment, sustainable investing carries risk. Your investment can go up as well as down and you may not get back the full amount invested.
Get in touch
If you’d like your money to be a force for good, speak to an Amber Fiver independent financial adviser who can explain your options when it comes to sustainable investing. Call 0800 915 0000, or alternatively use our contact form to arrange an appointment.
Disclaimer
The information within this article was correct at the time of publishing, but laws and tax rules are subject to change. Your circumstances and where you live in the UK may also have an impact on your tax treatment.
To learn about the government’s most recently-announced changes, please read our latest budget roundup: 2024 Autumn Budget Update
