The asset manager is the latest company to firm up its plans to label funds under the UK’s financial regulator’s new regime, which is starting to gain traction.
Asset manager Schroders said it plans to adopt Sustainability Disclosure Requirements (SDR) labels developed by the UK Financial Conduct Authority (FCA) for 10 of its funds, adding to a labelling drive that is gathering momentum, even if some firms have said they are struggling with its complexities.
Others have also said they will adopt the labels, including AEW UK, WHEB Asset Management, CCLA, Columbia Threadneedle Investments, Fidelity International, Ninety One, Jupiter Asset Management, EdenTree Investment Management, Impax Asset Management and M&G Investments, among others.
The FCA labelling regime is designed to make it easier for investors to assess the green credentials of funds and other products. As such, it has broadly similar objectives to the EU Sustainable Finance Disclosure Regulation (SFDR) in that both regimes seek to reduce the scope for greenwashing by improving trust in sustainable finance investments and products, providing investors with better information with which to make decisions.
However, the UK and EU regimes are not directly comparable, and while the EU SFDR is mandatory and applies to both EU-based firms and those marketing products in the EU, the UK’s SDR is voluntary and only applies to UK-based companies.
Anna O’Donoghue, global head of product development and governance at Schroders, said the company’s intention to become an early adopter of the labels reflects the “integrity and robustness” of its sustainable and impact investment approach.
“The labels will help to differentiate our sustainable product range, making it easier for clients who are seeking sustainable outcomes to identify opportunities to invest,” she said.
O’Donoghue said Schroders will continue to liaise closely with the FCA, as it worked through the regulatory process for other relevant funds. Schroders said it expects to announce additional labels soon, with full details to be communicated to investors “in due course”.
Timeframes
Although the UK regime is voluntary, as of 2 December 2024, a UK fund making sustainability or impact claims without a label will need to provide access to “clear and simple information explaining how it’s invested and why it doesn’t have a label”, according to FCA rules. However, those who registered their intention to use labels by October 2024 now have until April 2025 to finalise their labelling.
Under the SDR, initially published in 2023, UK-based companies can choose to apply one of four sustainability labels to products that meet the necessary criteria.
The ‘Sustainability Focus’ label indicates funds with a relatively broad focus on people and planet, including, for example, renewable energy investments. The ‘Sustainability Impact’ label applies to funds whose products aim to achieve a pre-defined positive measurable impact in relation to an environmental and/or social outcome.
‘Sustainability Improvers’ are those that invest mainly in assets that aim to improve their sustainability, even if they are not currently sustainable. ‘Sustainability Mixed Goals’ funds invest in a mix of assets covered by the other three labels. Most labels assigned so far are in the ‘Sustainability Focus’ and ‘Sustainability Impact’ categories.
Schroders said its Schroder Sustainable Bond Fund would be one of the first bond funds to announce plans to adopt an SDR label. In November, it announced its intention to adopt a Sustainability Focus label for its Schroder Global Sustainable Value Equity Fund.
It also plans to adopt the ‘Sustainability Focus’ label for the Schroder Global Sustainable Growth Fund, Schroder Global Energy Transition Fund, Schroder Sustainable UK Equity Fund and Schroder Global Sustainable Food and Water Fund
Impact label
A ‘Sustainability Impact’ label is planned for the Schroders Capital Real Estate Impact Fund (SCREIF) and the Schroder BSC Social Impact Trust (SBSI Trust) .
The SBSI Trust was launched in December 2020 by Better Society Capital and Schroders to provide investors with access to social impact investment opportunities in private markets tackling social challenges in the UK.
Susannah Nicklin, chair of the trust’s board said it was believed to be one of the first investment trusts to adopt the Sustainability Impact label. “By applying the label, we aim to demonstrate to investors both the rigour of our impact practice and our commitment to transparency,” she said.
Jamie Broderick, deputy chair of the UK’s Impact Investing Institute and a director of SBSI Trust, said momentum was building behind the FCA labelling regime, despite some early complaints about the complexity of the process.
“If you have a sustainability or impact process that is rigorous and that you can describe coherently and clearly to the FCA, then you would typically be going through this process, because there is demand for this,” he told Impact Investor.
Broderick noted that the annual ESG Attitudes Tracker from the Association of Investment Companies (AIC), published in October, showed that 64% of intermediaries believed the labels would increase their trust in sustainability claims.
A flurry of recent announcements from asset managers adopting SDR labels for funds suggests growing support for the regime, even if a few firms have decided to not acquire labels, preferring instead to drop references related to sustainability from some of their fund names.
“There are big brand names, well known among financial advisors, that have come out and said: ‘this is appropriate for us’. So, I think that will generate a fair amount of momentum. Financial advisors are going to see this and that will lead to an expectation that this is mainstream, not a niche activity,” Broderick said.
“If I were an asset manager and my competitors were out there with a product that was increasing trust with financial advisers and investors, I would start to develop a case of FOMO,” he added.
A surge in similar announcement was likely over coming months, given interest expressed so far, he said. Fund EcoMarket, an industry database provider, reported in November that more than 100 fund managers had told it they were working towards adopting labels for funds.
Kieron Boyle, then CEO and now chair of the Impact Investing Institute, described the UK SDR in an opinion article for Impact Investor in December 2023 as a pioneering regulation with the potential to deliver a step change in the transparency and accountability of the impact investing market.
