Fidelity International launches new sustainable investing framework to meet new ESG regulations

Investment management firm Fidelity International has announced it has revised its sustainable investing framework, launching a new three-tier system that ranks funds based on their level of ESG integration, citing the changing ESG client and regulatory landscape.

The revised framework comes against the backdrop of a series of new regulatory requirements for asset management companies marketing and managing sustainability-focused investment funds, including the EU’s Sustainability Reporting Regulation (SFDR), which established transparency rules on the integration of sustainability risks and the consideration of adverse sustainability impacts of financial products; the European Securities and Markets Authority’s (ESMA) new guidelines for the use of ESG and sustainability-related terms in investment fund names, which include an 80% threshold as a minimum proportion of investments used to meet the sustainability characteristics of funds using the term ‘sustainable’; and the UK’s Financial Conduct Authority’s (FCA) recently launched Sustainability Disclosure Requirements (SDRs), aimed at helping investors assess the sustainability attributes of investment products and avoid the risk of greenwashing.

Fidelity International said its revised framework has been designed to meet the requirements and expectations of each of these new regulatory regimes and to broadly align with ESMA’s 80% threshold.

In a statement announcing the updated framework, Fidelity International said:

“Regulatory developments play a critical role in shaping the sustainable investment landscape. Governments and regulators around the world are implementing various measures to encourage investors to consider ESG factors in their investment decisions, while also regulating how they market sustainable products to their customers. »

The new framework introduces three categories of sustainable investment funds, including “ESG Unconstrained,” which will include Article 6 funds that may or may not integrate ESG risks and opportunities into the investment process, but will apply Fidelity’s firm-wide exclusions, such as controversial weapons; “ESG Tilt,” which will include Article 8 funds that aim to promote environmental and social characteristics by tilting toward issuers with stronger ESG performance than the product’s benchmark or investment universe, and applying additional exclusions such as tobacco production, thermal coal mining, thermal coal-fired power generation and certain sovereign issuer exclusions; and; “ESG Target,” which will include Article 8 and Article 9 funds that have ESG or sustainability as a key investment objective, such as funds that invest in ESG leaders, those that target a sustainable theme, or those that meet impact investing standards.

Jenn-Hui Tan, Director of Sustainability at Fidelity International, said:

“We have a long-standing commitment to sustainable investing and have continued to evolve our approach and capabilities in line with client requirements and ESG regulations. Integrating sustainability into investment research and portfolio construction is part of our fundamental process to identify drivers of long-term value creation.

“Our revised framework aims to facilitate the creation and maintenance of a consistent, transparent and practical range of investment capabilities that meet the evolving needs of clients and regulators. We believe this framework balances a robust approach to sustainability with a flexible approach that can accommodate different investment styles, asset classes and client preferences. »