Navigating the New Era of Sustainable Investing: Adapting Marketing and Portfolio Strategies

In response to the UK's groundbreaking Sustainable Disclosure Regime (SDR), professionals in fund management and product provision are bracing for transformative shifts in their marketing and portfolio disclosure practices. This regulatory development, conceived as an alternative to the EU's Sustainable Fund Disclosure Rules, aims to combat "greenwashing," as highlighted by ESG specialist Andrea Acimovic from Elston Consulting.

According to Acimovic, fund buyers are now tasked with documenting SDR reporting from providers and conveying this information effectively to clients. Mark Foster, an investment manager at Parmenion, emphasized that while the new rules enhance provider accountability, they won't entirely replace the need for fund buyers to conduct thorough analyses of individual funds.

Acimovic further stated, "SDR will reshape how fund providers operate." Compliance involves a substantial overhaul, requiring comprehensive disclosures, ongoing reporting, and precise marketing of sustainable investment products.

Consequently, fund houses must develop detailed consumer-facing disclosures, maintain sustainability reports, and provide entity-level disclosures—all meticulously aligned with the SDR framework.

The implementation of these regulations demands significant initial and ongoing investments in updated systems, processes, and staff training. This introduces an additional layer of considerations in both developing and selecting funds for client portfolios. Acimovic stressed the importance of effective communication, as discretionary fund managers (DFMs) need to articulate the benefits of sustainable investments and elucidate the implications of these regulations for end-clients. Staying abreast of evolving rules, guidance, and consultations is crucial in navigating the dynamic regulatory landscape.

Looking ahead, the next phase of the UK's regulatory framework will address the labeling of model portfolios, a facet not covered by the current regulations. The Financial Conduct Authority is set to launch a consultation on this issue shortly. As the financial industry adapts to these changes, embracing transparency and sustainability becomes not only a regulatory requirement but a fundamental aspect of responsible and forward-thinking investment practices.