Advisers and wealth managers have given a “cautious welcome” to new sustainability labels from the Financial Conduct Authority (FCA), with most expecting them to increase trust in sustainability claims.

Analysis from the Association of Investment Companies (AIC) found that 64 per cent of intermediaries felt the labels would increase their trust, with wealth managers more likely to expect improved trust (78 per cent) compared to financial advisers (55 per cent).

Of the four labels, ‘Sustainability Focus’ was the label most likely to be used for screening purposes, with 54 per cent of intermediaries saying they would use it this this way.

Meanwhile, ‘Sustainability Impact’ was the second most popular label (52 per cent), followed by ‘Sustainability Improvers’ (47 per cent) and ‘Sustainability Mixed Goals’ (37 per cent).

However, the study revealed concerns about the low numbers of funds with labels, as well as how labels, or the lack of them, could impact funds that intermediaries currently use.

The labels have been positively received among private investors, with 63 per cent saying they would increase their trust in funds’ sustainability claims, rising to 71 per cent among those who held sustainable investments already.

“Advisers and wealth managers have given a cautious welcome to the FCA’s new labels; it’s clear they would increase trust and that many would use them for screening purposes,” commented AIC research director, Nick Britton.

“However, questions remain about whether the universe of labelled funds will be large and diverse enough to build a portfolio, as well as concerns about what happens to funds that have been presented as sustainable but don’t claim a label.

“One key concern is that the labelling regime currently only applies to UK funds, excluding those based overseas. This means that many of our member companies in the renewable energy infrastructure sector, for example, are outside the scope of the regime, though they may have impeccable environmental credentials.”

The AIC’s study also revealed that opinions on ESG investing in general appeared to be stabilising, with 57 per cent of intermediaries saying their opinion had remained unchanged since last year, while 24 per cent had grown more favourable and 17 per cent felt less favourable.

This was in contrast to previous years of the survey, in which opinions had shifted more strongly in a favourable direction.

Furthermore, only 19 per cent of intermediaries expected ESG investing to improve performance, compared to 30 per cent who said it would worsen performance.

Optimism has been on a downward trend since 2021, when 47 per cent of respondents thought ESG investing would help performance, and only 16 per cent thought it would be a hindrance.

Wealth managers were more optimistic about performance than advisers, according to the AIC’s study.

While 60 per cent expected demand for ESG strategies to increase over the next 12 months, this was representative of a consistent downward trend, as in 2021, 2022, and 2023, 91 per cent, 80 per cent, and 72 per cent expected demand for ESG strategies to rise.

However, the percentage of intermediaries recommending sustainable funds has held steady at 89 per cent, the same as in 2021.

On average, 18 per cent of client assets were held in sustainable funds, similar to previous years, according to the AIC.

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