The board of the Impact Healthcare REIT – a real estate investment trust investing in a diversified portfolio of UK healthcare real estate assets – has announced that it is set to change its name as a result of the naming and marketing rules outlined in the Financial Conduct Authority (FCA)’s Sustainability Disclosure Requirements (SDR).
In its latest interim report, the board of the Impact Healthcare REIT, which is managed by Impact Healthcare Partners, noted: “In May 2024, the FCA updated its SDR [which] will restrict the use of certain sustainable terms in products available to retail investors from December 2024. The word ‘Impact’ is specifically proscribed unless the primary aim of the business is social impact, as measured by a high threshold of reporting requirements. To avoid confusion and to comply with these new requirements, the company will change its name in the coming months and will provide further details in due course.”
According to SDR rules on naming and marketing, sustainability-related terms can only be used in product names and marketing if they use a label – provided that, where the ‘sustainability focus’, ‘sustainability improvers’ or ‘sustainability mixed goals’ labels are used, the word ‘impact’ is not used in the product’s name – or, if they do not use a label, they must comply with the the ‘product name’ and ‘marketing’ guidelines. These include things such as producing the same types of disclosures as required for a labelled product and publishing a statement to clarify that the product does not have a label and the reasons why.
A slew of company and fund name changes on the way
Andrius Makin, senior fund manager in Killik & Co’s fund research team, told PA Future that as many investment trusts don’t have a sustainability objective explicitly in their investment process, they will potentially need to formally amend their investment objective, “a ‘material’ change that would need shareholder approval at AGM”. At the least, these will need to be reviewed by management teams and boards.
“This will incur extra costs that will have a bigger impact on smaller investment trusts. If they decide the costs are not worth it, sustainable investors will have even less choice in the closed-end space. We could also see a dynamic where shareholders vote against getting a label because of the costs. It all depends on what the shareholder register looks like.”
He also noted the ‘impact’ label would be the most difficult to attain because of the need to show ‘additionality’. Investing in assets with a positive social or environmental contribution is “not enough”, and companies will need to show how their investment activity is also contributing to these outcomes.
“In Impact Healthcare’s case, most of the portfolio is invested in high quality residential care homes, assets that I imagine would be able to qualify. However, the board may feel that the additionality hurdle is too high and therefore have decided not to apply for a label. Unfortunately, the net result is that portfolio managers seeking a label themselves may not be able to invest into this strategy.”
Putting this into a wider context, FE fundinfo’s Mikkel Bates said there was “no doubt” that quite a few funds will be at least considering changing their name, for a variety of reasons.
“Perhaps they can’t use the terms ‘Sustainable/Sustainability’ or ‘Impact’ without having a label, or they may not feel confident about reaching the 70% threshold in assets with relevant sustainability characteristics. They may also not want to use the term and publish a consumer-facing disclosure, while having to explain why they don’t have the appropriate label. Or, it’s possible – though less likely – that the term the fund currently uses is not the most relevant one, e.g. green or environmental.
“On Trustnet, there are 21 unit trusts and OEICS with ‘Impact’ in their name, 263 with ‘Sustainable’ and 12 with ‘Sustainability’, so unless they all adopt a label by December, they will need to change their names. On the investment trust side, as well as the Impact Healthcare example – the only one with ‘Impact’ in its name – three have ‘Sustainable’ in their name. That is without looking at other terms funds may use in their names. So, that may give you an idea of the potential size of the challenge ahead.”
