The Investment Association (IA) is set to launch a consultation next week on the classification of environmental, social and governance (ESG) funds, Investment Week reports.
The consultation follows the creation of an ESG committee, set up by the IA earlier this year.
Will Oulton, director of responsible investment at First State Investments, is chair of the working group that is looking into whether the European Union’s definition of ESG is “fit for purpose”.
He said the IA is looking at whether the UK needs a different definition due to the evolution of the market over the past decade.
Oulton commented: “The IA is doing work on this, taking the definition from Brussels that has been used for the past decade and seeing if it is still fit for purpose.
“There is a consultation launching in the next week or so on the thinkings of this working group, which I chair.
“Should there be a different definition for the UK market? Which labels should funds use? How should funds demonstrate how ESG-heavy/light they are? This is all becoming much more important and will become even more relevant.
“In the future, firms will have to demonstrate how sustainable they really are and how this benefits the product.”
The move follows the European Commission’s decision to propose new rules regarding sustainability goals in May.
Under the proposed rules, asset managers and other institutional investors who have sustainability aims in their mandate will have to prove how their investments are aligned with their objectives.
Speaking at a press conference in May, European Commission Valdis Dombrovskis said: “On climate change, we are running out of time. The Titanic could not turn to avoid the iceberg at the last minute and we will soon be in a very similar situation.”
This report was first published on Investment Week, a sister publication to Investment Europe