The Financial Conduct Authority (FCA) has announced it is moving ahead with a new sustainability disclosure and labelling regime for the UK, which could help fund managers marketing sustainable real estate funds.
The regulatory authority confirmed today that is putting in place a new regime of Sustainability Disclosure Requirements, which will effectively act as the UK鈥檚 equivalent of the EU鈥檚 Sustainable Finance Disclose Regulation (SFDR).
The FCA is moving ahead with the three product labels it proposed last year, but it has added a fourth designed for funds that invest in a mixture of assets that could be applicable to more than one label.
The inclusion of 鈥渟ustainability improvers鈥�, 鈥渟ustainability impact鈥� and the new 鈥渟ustainability mixed goals鈥� are likely to be welcomed by real estate fund managers that are looking to market strategies that improve the environmental performance over time or seek to make a positive social impact.
According to the FCA鈥檚 policy statement, to disclose under the sustainability improver label, a fund must have 鈥渁n aim to invest at least 70% in assets that have the potential to improve environmental and/or social sustainability over time, and that are determined by their potential to meet the robust, evidence-based standard of sustainability鈥�.
Fund managers must also 鈥渋dentify the period of time in which the product and/or its assets are expected to meet the standard, including short and medium-term targets for improvements鈥�.
The 鈥渟ustainability impact鈥� label is also expected to be applicable to real estate funds looking to make positive social impact. The FCA鈥檚 policy statement gives an example of a hypothetical fund that 鈥渁ims to provide capital and income growth through investing in and owning socially positive real estate assets鈥�.
The hypothetical fund would own residential units and let them to organisations that support occupants classified as homeless to progress into self-sufficient living, with the rent financed by local housing authorities.
To be eligible for the mixed-goals label, a fund must have the objective to invest at least 70% in accordance with a combination of the sustainability objectives for the other labels.
The policy statement also suggests that long-term asset funds (LTAFs) that invest in a range of real assets could be eligible for the sustainability focus label.
LTAFs were introduced to help facilitate more defined-contribution pension capital into illiquid assets, and the SDR policy statement gives an example of a hypothetical LTAF that 鈥渁ims to achieve capital growth over the long term and a positive environmental impact by investing in climate themes that contribute towards the mitigation of climate change and adaptation of society to negative impacts of climate change鈥�.
The policy statement says: 鈥淭his may include renewable energy infrastructure, forestry assets, climate insurance provision and resilient real estate.鈥�
Objectives for the four SDR product labels
- Sustainability focus: To invest in assets that are environmentally or social sustainable, determined by a robust, evidence-based standard of sustainability
- Sustainability improvers: To invest in assets that have the potential to become more sustainable over time, determined by their potential to meet a robust, evidence-based standard of sustainability over time
- Sustainability impact: To achieve a predefined positive, measurable environmental and/or social impact
- Sustainability mixed goals: To invest in assets that meet or have the potential to meet a robust, evidence-based standard for sustainability, and/or invest with an aim to achieve positive impact
Paul Richards, managing director of the Association of Real Estate Funds (AREF), said: 鈥淭his is extremely welcome news. Real estate funds of almost every hue are at the forefront of responding to climate change and taking sustainable opportunities.
鈥淚t鈥檚 to be hoped this new package of measures will go a long way to reassuring investors 鈥� from individual savers to large institutions 鈥� that they can play their part through their investments.鈥�
Lonneke L枚wik, CEO of the European real estate investor association INREV, said: 鈥淲e鈥檝e been encouraging the FCA to develop labels that better accommodate real estate transition strategies.
鈥淲e believe labels that support transition strategies are important and can help direct investment to decarbonising the built environment.鈥�
Melville Rodrigues, real assets head of advisory at Apex Group, said: 鈥淭he SDR policy statement is a very welcomed positive for our real estate sector, and a reflection of the constructive engagement between our sector and the FCA officials during the SDR consultation process.
鈥淭he FCA is helpfully running with the four labels that real estate fund managers and their investors can each embrace, including for attracting institutional capital with net-zero transition strategies, pressing emission reduction and other ESG goals.鈥�
Rodrigues said it was 鈥渢errific that 鈥� based on examples that I proposed to the FCA 鈥� the FCA has expressly endorsed鈥� the concepts of 鈥渁 sustainability focused LTAF鈥� and a social impact real estate fund that would be eligible for the sustainability impact label.
鈥淭he example [given by the FCA] usefully refers to a fund focused on 鈥榓chieving positive social impact relating to the fight against homelessness鈥�,鈥� he said.
Rodrigues said the policy statement was also timely, because the EU was currently consulting on reforms to SFDR up until December 15, including its various disclosure labels.
鈥淧ost-Brexit EU regulators can learn from learn from UK regulators 鈥� and vice versa,鈥� he said. Rodrigues suggested that respondents to the SFDR consultation could 鈥渁dvocate FCA SDR labelling solutions that may be useful with the SFDR reforms鈥�.
He said: 鈥淭he overall aim should be to achieve international coherence between the UK鈥檚 SDR with other regimes including the EU鈥檚 SFDR.鈥�
To read the latest 91传媒在线 magazine click here.
