Starting today, UK-domiciled funds can start using new sustainability labels.
The labels were introduced to stamp out greenwashing, making it easier for investors to find sustainable funds that meet their needs.
This article isn’t personal advice. If you’re unsure if a course of action is right for you, please ask about advice.
Here are the four labels:
Name | Definition |
|---|---|
Sustainability Impact | Funds investing in companies that aim to achieve a positive, measurable impact on the environment and/ or society. |
Sustainability Focus | Funds investing in companies that are environmentally and/ or socially sustainable. |
Sustainability Improvers | Funds investing in companies with the potential to improve their environmental and/ or social sustainability over time. |
Sustainability Mixed Goals | Funds investing in a mix of sustainable companies, those with potential to improve, or those aiming for a positive impact. |
Sustainable funds need to meet strict criteria to achieve a label.
For example, they need to have a sustainability-related objective, alongside a financial one, and produce detailed disclosures to help investors understand and compare their approach.
Only labelled funds can use the term ‘sustainability’, (or any variation of that word), in their names, and only Sustainability Impact funds can use the term ‘impact’.
There are also strict limits on how non-labelled funds can use other sustainability-related terms (like ESG, climate, green, net zero etc.) in their fund name and marketing. Most unlabelled funds are restricted to using sustainability-related terms in their marketing for short, factual statements only.
Where funds use sustainability labels, we show them on the fund factsheet. The sustainability-related disclosures can be accessed on the ‘Key Features & Documents’ tab within a fund factsheet.
What about exclusions-based funds?
Avoiding investments in areas that cause environmental or social harm is one way to reflect your values in the way you invest, but it doesn’t necessarily lead to improved sustainability outcomes. So, most exclusions-based funds don’t qualify to use a label.
However, as exclusions-based generally avoid the worst environmental and social offenders they’re often more sustainably positioned than traditional funds.
Funds with some sustainability characteristics, but don’t qualify to use a label, can use some sustainability-related terms in their names and marketing. But only if they make similar disclosures to those produced by labelled funds, and publish a statement explaining why they don’t use a label.
Overseas funds
Overseas funds aren’t currently subject to the FCA’s labelling system, but it’s working to include them within the scope of the regulation over time.
Key dates
From 31 July 2024, funds can start using the sustainability labels, but they aren’t required to until 2 December 2024.
After this date, all UK-based funds making sustainability claims must either adopt one of the FCA's labels or meet stringent disclosure requirements explaining their sustainability approach and why they don’t have a label.
Looking to invest sustainably, but aren’t sure where to find investment ideas?
Our Wealth Shortlist features a number of funds from this sector, selected by our analysts for their long-term performance potential.
Remember, investments can go down as well as up in value so you could get back less than you invest.