It’s happening! Sustainable and ESG portfolios will soon be regulated in the UK.

The UK's Financial Conduct Authority is now consulting on a swathe of new rules - to be implemented on a relatively short timeline - to ensure that all ‘sustainable’ portfolios are, in fact, sustainable.

In short:

1. The rules cover both model portfolios and bespoke portfolios.

2. A portfolio that’s marketed as ESG or sustainable (or similar) must satisfy the criteria for one of four labels - Sustainability Focus, Sustainability Improvers, Sustainability Impact or Sustainability Mixed Goals - or managers must justify to consumers why it’s marketed as sustainable but remains unlabelled.

3. Labelled or otherwise, managers must provide a 2-pager to consumers, containing the portfolio’s investment strategy, key sustainability metrics and KPIs.

4. Further, lengthier disclosures must be made to consumers pre-contractually and annually.

5. There are additional requirements on firms of over £5bn AUM.

The new rules are based on similar rules for retail funds, which come into force this year. Once again the UK is taking the lead on labels and naming, going further even than the EU. If successful, we can expect these rules to make their way in some form around the world.

Consumers should benefit as labels become more widely understood and universalised across the investment industry, building trust and confidence in sustainable investing… At least that’s the theory.

The proposed timeline is significantly compressed, with requirements building from December 2024. UK wealth managers offering some form of sustainable portfolio services (i.e. most of them) will need to start working out how the regime will apply to them and start costing its implementation… Watch this space.