Asset managers too often fail to explain clearly how their “green” products meet sustainable investment criteria, Britain’s Financial Conduct Authority said on Wednesday as the watchdog cracks down on “greenwashing” and lack of clarity around how fees are established.
The rush of cash into funds badged as meeting certain environmental, social and governance (ESG) criteria has prompted regulators to root out asset managers that “greenwash” or overplay the green credentials of their funds.
Nick Miller, the FCA’s head of asset management, said asset managers must be able to articulate clearly how a proposed product meets ESG criteria when seeking authorisation for it.
“A lot of the time we are seeing firms failing to do that,” Miller told an Irish Funds event. “We are not getting great answers all the time. It’s not good enough.”
Britain is home to one of the world’s biggest asset management centres, managing over 8 trillion pounds in assets in the UK and elsewhere.
“ESG is a huge issue across the sector which I think over time will probably redefine how we think about asset management and what customers can expect from their firm,” Miller said.
The FCA is due in coming weeks to give its next update on efforts since 2017 to ensure that asset managers are being transparent with customers about how they set fees.
Miller said scrutiny has led asset managers to switch investors to share classes with lower fees in some cases, but there was not enough thought about management fees or economies of scale.
“There is scope for improvement overall, but a good start to some extent,” Miller said.
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