Why we’ve been quiet on Ethical

Posted 11 July 2025

We were proud and honoured to be named Best Ethical DFM in the MoneyFacts Investment & Pensions awards in 2023 and 2024. Tatton is a pioneer of Ethical MPS, creating our first portfolio in 2014. Back then Ethical investments were not mainstream and not particularly controversial. However, as the sector gained popularity, it also gained extra scrutiny and due to concerns over mis-selling a tighter regulatory framework to protect consumers.

We welcomed the FCA Sustainability Disclosure Requirements (SDR), introduced last year, as they protect clients from greenwashing by prohibiting any regulated firm from using misleading sustainability terminology. The FCA also initially included a labelling regime for MPS portfolios within SDR which, for many MPS managers (Tatton included) created a great deal of uncertainty about how we could promote our 10 year old award winning Ethical portfolios.

This was not because we’re worried we are greenwashing, but because sticking with the values-based approach we pioneered means taking a different route to the current FCA approach.

Implementation challenges for portfolios has seen SDR kicked down the road.
The Financial Conduct Authority’s (FCA) anti-greenwashing rule, implemented in May 2024, is designed to protect consumers from products that are marketed as environmentally friendly when they actually aren’t. The rule applies to all regulated firms, requiring us to make sure that all marketing communications that relate to “sustainability” are consistent with the product’s actual sustainability features, and are clear, fair and not misleading.

Anti-greenwashing rules fall under the FCA’s Sustainability Disclosure Requirements (SDR). SDR also describes four sustainability-related labels that funds can use, and the reporting requirements for investment providers to use those labels. SDR, which currently applies to funds, was supposed to be extended to portfolio managers last year. However, the implementation for model portfolio services (MPS) was delayed after the FCA’s consultation with the industry. The regulator has given no timeline for when SDR might be extended to MPS, and has said it is focussing on its broader review of our industry.

One of the main reasons SDR’s implementation for portfolio management was kicked down the road is because the strict labelling and reporting rules don’t easily translate to the portfolio level. The proposals seemed to conflate fund structures (where assets are held together in one pot) with portfolio structures (where they can be held separately), making unclear to whom the disclosures should apply. Technical difficulties meant take-up for the labels was limited. restricting the investable universe to a level where constructing balanced investment portfolios comprised of labelled funds is impossible.

Attempts to provide clarity are welcome, but right now they’ve made it less clear.
Regulatory guidance on language and words is also why we have chosen to avoid using ESG-related terms, either in the naming of our Ethical portfolios, or in communications. Not because we think we are breaking the FCA’s SDR rules, but because it’s unclear how the rules should apply to MPS providers like Tatton. We take the risk of misleading consumers very seriously, so given the lack of clarity, we feel it is better to avoid potentially misleading terminology.

Providing clarity is exactly what the FCA intended with its anti-greenwashing and sustainability labelling rules. We believe that that transparency, clarity and accountability are crucial for any investment product which claims to be in line with a client’s values. In that respect, we support the FCA’s efforts to make investments which are branded as sustainable more reflective of the environmental concerns of investors. Right now, though, the regulation does not fit well with how MPS offerings are structured. Now, with the dust settled and our distinct approach solidified, we feel the time is right to be more vocal about our Ethical Portfolios once more.

Our ethical approach prioritises engaging with clients.
In our Ethical Portfolios, we screen assets to limit the portfolios’ exposure to particular ‘bad’ industries. We don’t come up with the list of bad industries just by ourselves, but by surveying financial advisers and their clients regularly. This is because we want our Ethical offering to be in line with the values of the people who want it – and the feedback we receive tells us that this is the approach our clients prefer.

Some investors might prefer a different approach, like buying companies with high emissions and trying to use shareholder power to bring those emissions down, for example. This is a perfectly legitimate approach – just not the one that our clients seem to favour. For us, that’s the key point: people should be able to invest according to their own values, so investment providers need to be clear about the values that their products embody.

Common labelling and disclosure rules are a good way to provide that clarity and accountability. But they might not be the only way. For our Ethical portfolios, we plan to keep asking investors about their ethical concerns, and implement them. Perhaps that will one day align with the FCA’s environmental regime for MPS – whatever that may look like. In the meantime, we think it is more important to stick to our process and principles.