Managers of ESG funds received notice from the U.K.'s Financial Conduct Authority on Monday that many applications seeking authorization are falling short.
Numerous applications "have been poorly drafted and have fallen below our expectations. They often contain claims that do not bear scrutiny," said Nick Miller, head of asset management supervision at the FCA, in a letter to fund management firm chairmen.
"We expect to see material improvements in future applications. We also expect clear and accurate ongoing disclosures to consumers where funds make ESG-related claims, and we want to see funds deliver on their stated objectives and/or strategy," the letter said.
To help firms shape up, the FCA released a set of guiding principles to spell out expectations, and to ensure that ESG-related claims are clear and not misleading on an ongoing basis. The principles are targeted at funds that make specific ESG-related claims, not those that integrate ESG considerations into mainstream investment processes.
"We will continue to scrutinize and challenge firms on their fund strategies and disclosures and to ensure that documentation submitted to us for authorization meets our regulatory requirements," Mr. Miller wrote.
