Who will pay the £600 million bill for switching to new funds that are truly green?

Tens of thousands of investors who thought they were doing the right thing by buying a green fund will soon be faced with a tough decision: hold or skew.

New regulations, due to be finalized in July by the Financial Conduct Authority (FCA), could see hundreds of green investment funds being released as the regulator clamps down on greenwashing – the cynical marketing of a fund as green when it is not.

Those investors trapped in such mislabeled funds will face a stark choice: stay where they are and compromise their principles; or switch to an alternative fund that meets the new FCA criteria.

Wealth manager Alan Miller, who has been at the forefront of denouncing greenwashing in the mutual fund industry, says investors shouldn’t have to bear the costs of switching — or resulting taxes such as capital gains taxes.

Shock: Georgia Elliott-Smith discovered that her green pension was invested in Shell

Shock: Georgia Elliott-Smith discovered that her green pension was invested in Shell

Miller, co-founder of asset manager SCM Direct, told The Mail on Sunday: “You can argue whether the new labeling regime for green funds is right or wrong. But the result is that there are costs that the FCA should have considered – and that someone would have to pay.”

He added: “Consumers thought they had a green fund. If they are now told that is not the case, they will not have to pay the cost of switching to an alternative fund that is considered green by the FCA.

‘If you buy a new electric car that turns out to run on oil, you would expect it to be exchanged for free.’

Miller said the total cost of this move to investors could exceed £600m – and is adamant that investment management groups guilty of mislabeling funds should foot the bill.

“Certainly, it’s the fund groups that have to pay the switching costs,” he said. “In no other commercial field should the consumer foot the bill caused by misrepresentation by others.”

Miller’s £600m back-of-the-envelope calculation is based on a statistic released late last month by the head of the investment fund trading body – the Investment Association (IA) – before the powerful Commons Treasury Select Committee (TSC) .

According to the IA, £95bn of investor money is held in ‘responsible’ funds. But under the new labeling regime put in place by the FCA, IA chief Chris Cummings says 70 percent of funds will no longer be able to market themselves as suitable for green investors.

If green funds are mislabeled, it seems clear that the offending fund groups – not the investors – should be forced to pay any transfer fees investors face when moving to authenticated products

Georgia Elliott-Smith, Element Four

Assuming half of the investors in these non-compliant funds shift their money – and take into account the switching costs and capital gains tax – Miller arrives at his potential consumer bill of £600m.

Georgia Elliott-Smith is managing director of London-based sustainability consultancy Element Four. She was shocked to discover that the company pension scheme she thought was green was invested in oil giant Shell. She moved it to another provider.

“Investors buy green funds because they want to do their part to save the world,” she says. “If you find out that the product you bought isn’t as green as you thought, it’s very disappointing.”

She adds, “If green funds are mislabeled, it seems clear that the offending fund groups – not the investors – should be forced to pay any transfer fees investors incur as they move to authenticated products.”

Cummings warned members of the TSC that “bubbles” in the market could result from money being moved to a smaller number of FCA-approved funds. Still, he got short shrift with some members.

Angela Eagle, Labor MP for Wallasey, accused Cummings of not thinking about consumer interests. Like Elliott-Smith, she said no consumer investing in a green fund “expects it to have exposure to energy companies.”

She added: “If consumers feel they are being ripped off by greenwashing claims – they are right now and, unless we get it right, they will in the future – they will become very cynical and totally don’t invest.’

The committee also took the FCA’s admission that the regulator had not calculated what the cost would be to investors of wanting to switch funds when drafting its new labeling regime.

On Friday, Harriett Baldwin, TSC chairman, told the MoS: “I am particularly keen that consumers who have invested in funds in the belief that they are doing their part to save the planet do not bear the cost of moving their investment when they discover that their fund is not so green after all.’

The term ‘responsible’ – as adopted by the IA – covers a number of green and ethical investment strategies. These include exclusions (funds that exclude sinful stocks such as tobacco, oil and weapons manufacturers) and sustainability (investing in companies that adhere to high environmental, social and governance (ESG) standards.

Also impact investing – funds that invest in companies that have a positive impact on the environment, such as wind and solar energy generators.

Funds under this responsible banner carry a variety of labels, all designed to appeal to consumers who want to do their part to save the planet. They include eco-friendly, ethical, green, socially responsible and sustainable.

How are the rules for labeling funds changing?

Under the new FCA regime, green funds are classified under one of three labels: ‘sustainable focus’, ‘improvers’ and ‘impact’.

A fund can categorize itself as a sustainable focus if 70 percent of its assets meet “a credible standard of environmental and/or social responsibility.”

“Improvers” are funds that encourage companies to improve their sustainability credentials over time. The ‘impact’ group will consist of funds invested in companies that are actively working to improve the environment.

Fund platform Interactive Investor provides investors with a list of green fund recommendations and commissions consultant SRI Services to prepare the 41 recommended funds.

On Friday, it told the MoS that until the FCA comes out with its final rules in the summer, it “cannot gauge the future direction of the list.”

Interactive also says it “broadly supports” the new FCA labels, although funds excluded under the new regime must carry a “not promoted as sustainable” label in the interest of clarity for investors.


Silence Is Golden was a hit for The Tremeloes in the late 1960s. But it seems the song has been taken up by leading investment firms regarding the FCA labeling of green funds.

A few days ago, The Mail on Sunday asked six major fund groups two key questions:

1) How many of your responsible/sustainable funds would not fall under the new FCA categories?

2) Who do you think should pay for the transfer fees (including any associated tax implications) of someone who is in a green fund that does not comply with the FCA’s new labeling rules. The fund provider or someone else? Fidelity, Liontrust, Jupiter and M&G responded, but declined to participate in the second question.

Fidelity said it was still trying to get to grips with the impact of the FCA’s proposals. Liontrust said it expected its range of “sustainable future” funds to be classified as “sustainable focus.” Jupiter said it “supported the intentions of the FCA.”

M&G said it was important ‘for the industry to ensure our sustainable and impact funds meet investor expectations’.

Royal London declined to comment, while Janus Henderson did not respond.

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