There is a “healthy pipeline” of funds applying for SDR investment labels, in line with where the regulator expected the market to be at this stage, the Financial Conduct Authority has said.
Alicia Kedzierski, head of sustainable finance at the FCA, told delegates at the UKSIF Good Money Week conference 10 labels had been awarded as of yesterday (October 2) and many more were in the pipeline.
Though she could not say how many labels the regulator expects to authorise before the final deadline, which is now April 2025, she said the number was in line with expectations and that more funds would be authorised over time, with shifts in the popularity of particular labels also anticipated.
She said: "We introduced SDR and the labelling regime, really to help consumers. And it is about reducing greenwashing, better information in the market and building trust.
"It is still the early days of SDR implementation...The pipeline is where we expected it to be. I say healthy. It is a lot of firms wanting and trying to think about using these labels."
She added: "The whole regulation tries to set a higher standard, and it aims to raise the bar. We never expected that all funds would get a label. That was not the point.
"We do expect that there will be a significant number of them, and we also expect that it will grow over time, and the number of labels in different categories will shift."
Firms originally had until December to get their funds authorised for one of four labels created by the FCA. This deadline was extended by four months in September for those who have already applied for a label.
Under the SDR rules only products with a label can use certain terms such as sustainable and impact in their names. Others can still use the terms ESG and green but only if they meet certain criteria.
Kedzierski said the extension was a reflection of the time it took firms to become authorised.
"We saw really, really good progress, but it was clear that it was taking longer than expected, and we wanted to make sure that those applying in good faith were given that extra time to be able to meet the requirements," she said.
This process should help fund managers and the financial advisers they work with understand the outcomes of the funds and allow them to better communicate those to their clients, she said.
Difficult process
But applying has not been easy, according to asset managers, who shared their experiences in a panel discussion earlier in the conference.
They agreed the new rules were raising the bar for sustainable investing and that more labeled funds would enter the market over time.
But they said the fact it was early days for the legislation, and guidance was broad, made it difficult to gauge what the regulator was looking for.
"I found from the application process that a lot of the FCA's questions and pushbacks have come from them not fully understanding what a fund is trying to achieve, potentially because this hasn't been fully articulated," said Amelia Gaston, senior responsible investment analyst at Edentree.
