UKSIF chief sees hope for further traction of UK anti-greenwashing measures

As an increasing number of asset managers seek sustainable investment labels from the Financial Conduct Authority (FCA), the UK’s approach to defining sustainability in a fund could get more widely adopted, according to James Alexander, chief executive officer of the UK Sustainable Investment and Finance Association (UKSIF).

Created by the FCA last year with the goal of combating greenwashing and improving transparency, the Sustainable Disclosure Requirements (SDR) package includes four voluntary sustainability fund labels with minimum requirements, and a set of marketing and disclosure rules.

Implementation met with some challenges and UKSIF’s Alexander said the industry association was pleased to see more funds successfully adopting SDR labels, with hopes for this to continue into 2025.

His comments come after enthusiasm for sustainability labels in the UK seemed to wane ahead of the SDR’s rollout this year, in part as asset managers realised the criteria to get an SDR label were more stringent than expected. Many funds marketed in the UK also haven’t been in scope although a consultation is planned on extending SDR measures to overseas funds.

More recently there have been a series of announcements from asset managers about committing to SDR label adoption, with Fidelity and NinetyOne among the big names to come forward.

Regulatory ‘ping pong’

As well as managing complexities within the SDR package itself, another concern for industry has been international regulatory fragmentation.

“I think one of the challenges has been that SDR only covered UK-domiciled funds, and so the opportunity to extend that to cover international funds might create a scenario where the UK’s approach to defining sustainability in a fund is something that gets more widely adopted across the world,” Alexander said.

“I think it was absolutely right that we developed our own system framework in the UK, as SFDR is not working very well in its current phase.”

James Alexander, CEO of UKSIF

The UKSIF CEO anticipates an ongoing regulatory ‘ping pong effect’ between the European Union’s sustainable finance disclosures regulation (SFDR) and SDR.

“With SFDR being reviewed by the European Commission by next summer and SDR bedding in further, it could hopefully help influence the SFDR review,” he said. “SDR in turn may look to draw on the next iteration of SFDR in time post-review.”

He added: “I think it was absolutely right that we developed our own system framework in the UK, as SFDR is not working very well in its current phase.”

The European Commission is currently expected to set out its plan for the next steps regarding SFDR by the end of June next year.

Another big factor for SDR’s success, according to Alexander, is for the investment community to get used to how the regulator is approaching the measures.

“Another challenge is that the FCA has developed the SDR as a piece of principles-based regulation, and I think there’s still a challenge for the FCA in how they create an authorising environment, using their own principles-based regulation, without it becoming a rules-based framework,” he said.

ISSB adoption

UKSIF also has corporate sustainability reporting rules on its mind.

In her Mansion House speech last month chancellor of the exchequer Rachel Reeves said the government would consult on requiring large companies to disclose in line with International Sustainability Standards Board (ISSB) standards, and Alexander said he is hopeful that tangible progress will be made on ISSB adoption in 2025.

“We want to see ISSB adopted in the UK,” he said. “We think it’s an important piece of global regulation. And the more globally consistent pieces of regulation we have the better.”

The UK government plans to consult on proposals to adopt ISSB standards into UK law in the first quarter of 2025. The previous government had planned for endorsement of the ISSB reporting standards in July 2024. 

The committee advising the government on how it would adopt ISSB disclosure standards includes representatives from Generation Investment Management, the London Stock Exchange Group and HSBC.

UKSIF’s Alexander added that he is keen to see ISSB extended into nature and biodiversity.

US climate policy

Looking ahead to a second Donald Trump presidency, Alexander said the priority is to make sure that the US, alongside the rest of the world, keeps up the momentum on climate action.

“What we saw in the last Trump presidency, was that there were US cities, states, and regions, along with the private sector who all clubbed together to say that while the federal government might have left the Paris Agreement, we’re still committed to it.”

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