‘More work to do’ on FCA sustainability labels despite improved trust

The Financial Conduct Authority’s (FCA) sustainability labels have improved trust in sustainability claims among advisers and wealth managers, but there is still more work to do, according to the Association of Investment Companies (AIC).

Its ESG Attitudes Tracker found that the impact of the four sustainability labels was growing year-on-year.

Almost two in five (39 per cent) intermediaries said their trust in sustainability claims had increased due to the introduction of the labels, up from 28 per cent last year.

However, more than half (54 per cent) believed they had made no impact, although this was down from 60 per cent last year.

Wealth managers were more likely than financial advisers to say their trust had improved, at 51 per cent compared to 31 per cent.

Morningstar data showed that 103 funds have adopted the labels, which were introduced by the FCA in July 2025 to address greenwashing and improve investors’ trust in funds’ sustainability claims.

The Sustainability Focus label was by far the most commonly adopted, being used by 71 funds.

Six in 10 intermediaries had not used the labels, down from 68 per cent last year.

A quarter had used the Sustainability Focus label, followed by Sustainability Impact (24 per cent), Sustainability Mixed Goals (17 per cent), and Sustainability Improvers (12 per cent).

The AIC found that confidence in understanding the labels was mixed, with just under half confident in their understanding of the Sustainability Mixed Goals label, while just over half were confident in their understanding of the other three labels.

Among private investors, 31 per cent said they had some understanding of the labels, 31 per cent had heard of them but did not understand them, and the remaining 38 per cent were unaware of them.

Half of investors felt labels were likely to increase their trust in sustainability claims, while 37 per cent said they would have no impact and 13 per cent did not know.

A quarter said they had used the labels to research investments or make decisions.

The research showed that intermediaries’ trust in funds’ sustainability claims had increased year-on-year, rising from 13 per cent to 26 per cent.

“Low levels of trust and fears of greenwashing have been significant barriers to sustainable investing for years,” commented AIC research director, Nick Britton.

“It’s good to see that the FCA’s labels are starting to make a dent in this scepticism, but it’s too early to say that the problem has been fixed.

“The universe of labelled funds is very restricted with barely 100 to choose from, and there’s still plenty of room for improvement when it comes to use and understanding of the labels.

“For example, 92 per cent of advisers and wealth managers say they recommend sustainable funds but only 40 per cent have used the labels.

“One of the positive trends we have seen is a general increase in trust in sustainability claims, albeit from a low base.

“Last year 13 per cent of advisers and wealth managers said they trusted sustainability claims from funds – that’s now doubled to 26 per cent.”

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