The Financial Conduct Authority (FCA) has told fund managers that their “poor-quality” ESG fund applications must improve.
The UK watchdog said it has received “numerous” applications with a sustainability focus that were “poorly drafted” and fell below its expectations.
“They often contain claims that do not bear scrutiny,” the FCA wrote in a letter to the chairs of fund managers.
It warned them that applications in their current state were likely to be rejected for falling short of the the new requirements outlined in the statement.
The FCA said that ESG and sustainable funds are the fastest-growing market in Europe and, while it welcomes innovation in the area, it was also concerned about the impact of poor-quality fund applications on consumers.
The financial watchdog acknowledged the challenges facing the rapidly growing industry including that of ESG-related data and metrics but reiterated the need for firms to put “consumers at the heart of their businesses” to offer services that they know represent fair value.
A well-functioning ESG and sustainable investment market, it said, was also important in the pursuit of a net zero economy while highlighting the “serious long-term consequences” if the market is not managed properly.
Miller said they expected fund managers to make “material improvements” in future applications with “clear ad accurate” disclosures when it comes to funds making ESG-related claims.