Fidelity International Launches New Sustainable Investing Framework to Meet New ESG Regulations

Investment management firm Fidelity International has announced that it has overhauled its sustainable investing framework, introducing a new three-tiered system that categorises funds by their level of ESG integration, citing the changing ESG regulatory and client landscape.

The revised framework is in line with a number of new regulatory requirements for asset managers marketing and managing sustainable investment funds, including the EU Sustainable Finance Disclosure Regulation (SFDR), which sets out transparency rules on the integration of sustainability risks and the consideration of adverse sustainability impacts in financial products, new guidance from the European Securities and Markets Authority (ESMA) on the use of ESG and sustainability terms in investment fund names, which includes a threshold of 80% as the minimum percentage of investments that meet sustainability features of funds using the term ‘sustainable’, and the UK Financial Conduct Authority (FCA) recently introduced Sustainability Disclosure Requirements (SDR), which aim to help investors assess the sustainability features of investment products and avoid the risk of ‘eco-dark’ money laundering.

Fidelity International said the revised regulatory framework was designed to meet the requirements and expectations of each of these new regulatory regimes and broadly align with the 80% threshold set by ESMA.

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

“Regulatory changes are playing a key 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, as well as 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 their investment process, but will apply Fidelity-wide exclusions such as the controversial weapons; “ESG Tilt”, which will include Article 8 funds designed to promote environmental and social characteristics by tilting towards issuers with stronger ESG scores than the product benchmark or investment universe and applying additional exclusions such as tobacco production, thermal coal mining , thermal coal 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 focus on a sustainable theme or those that meet standards impact investing.

Jenn-Hui Tan, chief sustainability officer at Fidelity International, said:

“We have a long-standing commitment to sustainable investing and continue 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 core process to identify drivers of long-term value creation.

“Our revised framework aims to make it easier to create and maintain a consistent, transparent and practical range of investment opportunities 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 adapt to different investment styles, asset classes and client preferences.