Paris Jordan, Head of Responsible Investing at Charles Stanley, delves into the importance of SDR labels in the evolving landscape of sustainable investing.
It has been a confusing picture for those wanting sustainable investments. Different fund names, a variety of terms, and a lack of agreed standards created a complicated maze. While there are still complexities in this area, much work has gone into demystifying sustainability for financial advisers and clients alike.
Primarily, the launch of a new set of labels for funds should bring some long overdue clarity. These are known in the industry as SDR (Sustainability-Disclosure Requirements) labels and are designed to show investors which investments meet a high standard of sustainability. Asset managers can apply for the most appropriate label to represent their sustainable fund.
The four labels are:
1. Sustainability Focus: Funds investing towards positive environmental and social outcomes, investing in assets that already meet a robust, evidence-based standard of sustainability.
2. Sustainability Improvers: Funds investing in assets not considered sustainable now but have a sound strategy to make meaningful improvements. For example, shares in an oil company with plans to invest significantly in renewables.
3. Sustainability Impact: Funds investing in assets making a specific and measurable positive environmental or social impact. The role of fund manager is assessed on an ongoing basis to demonstrate this as well as the assets themselves.
4. Sustainability Mixed Goals: Funds investing in a combination of the above approaches. At least 70% of assets must be in line with the respective objectives for each part, and no holdings must conflict with any.
What can advisers expect?
Currently there are many funds undergoing this elective labelling process, and advisers should expect to see the labels presented and referred to more regularly in due course. New documentation will also be rolled out in the form of Consumer-Facing Disclosure Documents, more informally known as “Sustainable Factsheets” – these will accompany funds that have sustainability characteristics, including those who opt not to apply for a label. These “Sustainable Factsheets” explain the aims of the fund and how they go about being sustainable. They are likely to be an excellent instrument within a sustainability arsenal for financial advisers to rely on.
Indeed, with the introduction of these labels and supplementary documentation, advisers will need to ensure they consider sustainability needs and preferences of their clients to ensure they are providing the most appropriate investment portfolio.
Client profiling tools will need to move in line with the regime, particularly given how aligned Consumer Duty and SDR are. Futureproofing suitability processes alongside upgrades to existing environmental, social and governance questionnaires will be fundamental.
Beneficial for clients
The marketplace for Sustainability is clearly maturing and its formalisation should be beneficial for end clients.
However, with any change, existing processes will need to adapt. Thankfully, to assist financial advisers, MPS providers can shoulder the brunt of navigating this environment. Ensuring the right sustainability investment option is on panel is essential and can significantly reduce burdens. Ultimately, SDR and sustainability can enhance your offering and client experience when you have the right support.
For financial advisers who wish to utilise their MPS providers to assist them, please reach out to Charles Stanley for CPD-training, MPS options or general sustainability queries.
About Paris Jordan
Paris Jordan, CFA is the Head of Responsible Investing at Charles Stanley and the co-founder of Virtuvest: the responsible investor network.
Paris previously worked at Waverton Investment Management where she led the third-party fund research and model management across discretionary and advisory clients. Prior to this, she worked at Sanlam Investments managing over £2bn for retail and institutional investors, as well as developing Sanlam’s Socially Responsible model portfolio range in 2016.
Paris has been awarded Best Sustainable Investment Wealth Manager at the Sustainable Investment Awards 2023, Fund Selector of the Year 2021 at the Women in Investment Awards, and received a highly commended acknowledgement as an ESG Advocate in 2022.
She has a BA Hons degree in Politics, Philosophy and Economics, a Sustainable Finance Leadership Certificate from Oxford University, is a CFA charter holder and holds the CFA ESG Certificate.
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