The Financial Conduct Authority's new anti-greenwashing fund-labelling regime has proven so challenging to implement that it announced “temporary flexibility” on the new rules, extending the deadline for funds to adhere by four months.
The fact the FCA has granted this extension – to April 2 2025, from December 2 2024 – acknowledges the rigorous process and steps that companies must go through to implement its Sustainability Disclosure Requirements labels.
As the first listed equity fund to adopt the Sustainability Impact label – to our FP WHEB Sustainability Impact Fund – we hope that, by sharing our experience, we light the way for other fund managers serious about sustainable investing to proceed more smoothly.
We believe the industry is probably in the peak pain period for the new regime.
Because this is a principles-based regime, this first stage was always going to be the most painful because it requires some level of ‘norming’ around the interpretation of the principles.
A prescriptive approach – as the European Sustainable Finance Disclosure Regulation is – avoids this initial painful phase.
However, it provides a less adaptive, rigid system.
A principles-based approach provides a much better foundation for the long-term innovation and dynamism that we expect and need in the sustainability investment market.
It was clear from the outset that if it the new regime was going to meaningfully change sustainable finance, this was going to challenge the whole industry, irrespective of the type of investment strategies being run.
Our experience: how we did it
WHEB has always been a pure impact investor, with more than 25 years’ experience of delivering investment returns through positive impact.
Because of this, many assumed we would experience little pain getting through the process. They were wrong.
Being able to use the label was mission-critical for our business and received the highest priority.
The senior team worked on the project from the publication of the policy statement in November 2023.
Our core investment process has not changed. What has changed as a result of SDR is the clarity with which we describe our objectives and the structure we use to communicate the impact that is delivered by both our investments and our investment activities.
The old objective was to invest in companies providing solutions to sustainability challenges.
Now we talk about what we are trying to achieve: supporting a stable climate and healthy ecosystems and enabling more productive and healthy lives.
This is then broken down further in the prospectus to show in detail how the types of companies we invest in directly contribute to this positive sustainability impact.
The theory of change now states that our investments as well as our investment activities (such as stewardship and engagement) directly contribute to solving critical social or environmental challenges, which in turn leads to improved impacts compared with the present circumstances.
