U.K. Financial Regulator Slams ‘Poorly Drafted’ ESG Fund Filings

(Bloomberg) -- Money managers are issuing “poorly drafted” pitches for investment funds meant to combat climate change, with claims that “do not bear scrutiny,” said Britain’s financial-markets regulator as it ordered companies to improve disclosures.

The Financial Conduct Authority said in one case, a fund declared a sustainable strategy while containing two “high-carbon emissions” energy companies among its top 10 holdings.

“Fund applications in this area often do not contain sufficient, clear information explaining their chosen strategy and how this relates to the assets selected for the fund,” Nick Miller, head of the FCA’s department of asset management supervision, wrote in a letter to fund management chairs. “There is potential to undermine trust and deter consumers from this segment of the market.”

The regulator also published “guiding principles” to help funds set out their credentials on environmental, social and governance, or ESG, goals when asking for FCA approval.

With investment booming in ESG funds, regulators are laying out more detailed rules for the industry and beginning to crack down on “greenwashing” practices. The global market for ESG-related assets could grow to $53 trillion by 2025, and London is vying with Paris and other cities across the European Union to be at the forefront of the business.

©2021 Bloomberg L.P.