The majority of investors are aware of the Financial Conduct Authority’s (FCA) Sustainability Disclosure Requirement (SDR) labels, but vague wording and jargon are hindering investment in sustainable funds, according to the Investment Association (IA).

Its study, in partnership with The Wisdom Council, found that 86 per cent of financial advisers and 52 per cent of retail investors were aware of the FCA’s labelling system for sustainable funds.

While almost all (94 per cent) retail investors said they would find SDR labels helpful, just over three quarters (77 per cent) of advisers were confident that they understood the labels enough to choose funds appropriate for their clients’ preferences.

Nearly half (46 per cent) of the investors who had heard of SDR labels had been told about them by their adviser, which the IA said highlighted the important role advisers play in sharing key regulatory updates.

Of the advisers expecting to use the labels, ‘Sustainability Mixed Goals’ was expected to be used by 35 per cent, followed by ‘Sustainability Impact’ (29 per cent), and ‘Sustainability Focus’ (16 per cent).

However, the IA noted there was mixed confidence in sustainable terminology among both advisers and investors, with around half of investors stating that vague words, jargon and a lack of detail on fund documentation created barriers to investing in funds.

Only 6 per cent of retail investors would sell a fund if it did not meet the new criteria for a sustainability label, with this figure rising to one in five among advisers.

The IA found that green investment was “high on the agenda” for advisers, with 48 per cent ‘always’ speaking to clients about sustainability and 92 per cent reporting an increased appetite for sustainable investment from investors.

However, its research showed that the final decision on whether to invest in sustainable funds came down to return, with 55 per cent of investors considering it more important compared to just 8 per cent who would primarily consider sustainability.

“The end goal of the SDR and labelling regime is to bring greater transparency and consumer confidence to the market for sustainable investment products,” commented IA director of market insights, Miranda Seath.

“Our research has shown a positive trend in awareness of the labels amongst advisers and investors, with 94 per cent of investors stating they would find the labelling system helpful.

“However, the labels are only a starting point. Investors want to understand from fund managers how their money will be invested and to what end before selecting a sustainable fund and ideally want to see real-life examples of how the funds make a difference.

“Vague words, jargon and a lack of detail create barriers to understanding. Clear and accessible language is central to giving investors confidence in their decision-making – and this must remain front of mind for fund managers, advisers and regulators as label uptake increases.”

The Wisdom Tree head of investor governance, Dawn Hyams, added that there was a real appetite for clearly articulated content on how funds aim to drive change through their sustainability approaches, and effective education and support would be “key” to making a success of the SDR labelling regime.

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