UK watchdog the Financial Conduct Authority (FCA) has warned fund managers that their “poor quality” ESG fund applications may impact consumers and that the regulator is looking for improvement.

The body said in one case, a fund declared a sustainable strategy while containing two “high-carbon emissions” energy companies among its top 10 holdings.

According to the regulator, many applications within the high volume it receives fall below expectations and existing funds also face challenges to do with ESG-related data metrics.

ESG and sustainable funds are the fastest-growing market segment in Europe, t...