Sustainable investment specialist Castlefield is ready for where the Financial Conduct Authority's final sustainability disclosure requirements will fall across the whole fund range.
According to John Eckersley, founder of the Manchester-based company, every one of the funds run by the company are already either meeting the expectations for the label 'sustainable focus' except one, which is on the way to do so.
He said: "It seems an obvious point but if all your funds are run with an environmental, social and governance lens, then it is clear that our fund range stacks up in terms of the three labels the FCA is expected to measure all ESG funds by."
The three proposed terms - Sustainable Focus, Sustainable Improver and Sustainable Impact - are expected to help provide greater transparency and clarity for advisers and their clients once the final rules come in.
These are expected later this year as part of the overall SDR regulation (2023).
According to Eckersley, all but one of Castlefield's funds would be labelled 'sustainable focus', with 70 per cent or more of their assets meeting a credible standard of environmental and/or social sustainability, or align with a specified environmental and/or social sustainability theme.
The outlier is the multi-asset Castlefield Real Return Fund.
This is expected to be labelled 'sustainable improver' in that only 60 per cent of the underlying holdings are sustainable.
"It is an outlier for us", he said. "The nature of the product is that it has approximately 30 per cent invested in structured products, which themselves reference various underlying indices.
"But not all of these products are referencing ESG indices."
He explained: "Originally, the pricing of some underlying ethical indices included an element of uncertainty, which made it less economically viable to invest in the structured products that referenced these indices. So we did not buy these, because all of our fund holdings have to stack up financially.
"However, over the past few years we have been working to improve this - 18 months ago it was only approximately 40 to 50 per cent sustainable - so we believe we will be able to make it fully sustainable, like the rest of our range."
What are the SDRs, in a nutshell?
As outlined by consultancy KPMG, the FCA's SDRs are expected to state:
- Sustainable investment labels for investment products based on the nature of the product's investment objective and how it purports to promote positive sustainability outcomes.
- Consumer-facing product-level disclosures that summarise the sustainability characteristics of products with a focus on retail investors.
- More detailed sustainability disclosures aimed at a broader range of stakeholders, including pre-contractual and ongoing performance disclosures at product level, and entity-level disclosures.
- Product naming and marketing rules to prevent firms using sustainability-related terms in product names and retail-facing marketing materials unless the product in question qualifies for one of the sustainable labels.
- A general “anti-greenwashing rule” for all regulated firms.
- Rules to ensure distributors provide sustainability information to consumers.
