The new Financial Conduct Authority (FCA) sustainable fund labels will increase trust in sustainability claims for most financial advisers and wealth managers, according to the latest ESG Attitudes Tracker from the Association of Investment Companies (AIC).
The study was carried out by Research in Finance and surveyed 202 investors, investigating attitudes towards ESG. It found nearly two-thirds (64%) of participants said the FCA labels, created through the Sustainability Disclosure Requirements (SDR) would increase their trust, with this number highest amongst wealth managers (78%) than financial advisers (55%).
Further, the labels have been positively received by private investors. The tracker revealed 63% said the labels would increase their trust in funds’ sustainability claims. This comes as the percentage of investors who recommend sustainable funds has remained at 89%, the same as in 2021.
Further, of the four labels, the Sustainability Focus label is most likely to be used for screening purposes, with 54% of respondents saying they would use it in this way. The Sustainability Impact label was the second most popular at 52%, followed by Sustainability Improvers at 47%, and finally, Sustainability Mixed Goals coming in at 37%.
Yet, the tracker found that expectations of fund performance are low. Overall, 19% of respondents expect ESG investing to improve performance, compared to 30% who believed it would worsen performance. This comes as optimism has been on a downward trend since 2021, where 47% of surveyed participants believed ESG investing would help performance, and only 16% said it would be a hindrance.
Yet, the demand for ESG strategies is expected to increase. Over the next 12 months, over half of respondents (60%) expect an increase in demand, yet, in comparison to earlier years, this demand has slowed. In 2021, 91% of respondents expected demand for ESG to increase, declining to 80% in 2022 and 72% in 2023.
Nick Britton, research director of the AIC, said: “Advisers and wealth managers have given a cautious welcome to the FCA’s new labels. It is clear they would increase trust and that many would use them for screening purposes.
“However, questions remain about whether the universe of labelled funds will be large and diverse enough to build a portfolio, as well as concerns about what happens to funds that have been presented as sustainable but don’t claim a label.
“One key concern is that the labelling regime currently only applies to UK funds, excluding those based overseas. This means that many of our member companies in the renewable energy and infrastructure sector, for example, are outside the scope of the regime, though they may have impeccable environmental credentials.”
