The Financial Conduct Authority (FCA), the conduct regulator for financial services firms and financial markets in the UK, announced today the release of its new Sustainability Disclosure Requirements (SDR) for asset managers and investment labels rules, including a package of measures aimed at helping investors assess the sustainability attributes of investment products and funds, and avoid greenwashing risk.
According to the FCA, the new rules come as investors increasingly seek investments with positive environmentalEnvironmental criteria consider how a company performs as a steward of nature. and socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. impact, with global AUM in ESG-oriented funds anticipated to grow to $36 trillion by 2026, while around 70% of investors report lacking trust in the sustainability claims of investment products.
Sacha Sadan, Director of EnvironmentalEnvironmental criteria consider how a company performs as a steward of nature., SocialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. and GovernanceGovernance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights., FCA, said:
“We’re putting in place a simple, easy to understand regime so investors can judge whether funds meet their investment needs – this is a crucial step for consumer protection as sustainable investment grows in popularity.”
The new measures include an anti-greenwashing rule, applying to all communication by FCA-authorized firms about the environmentalEnvironmental criteria consider how a company performs as a steward of nature. or socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. characteristics of financial products or services, aimed at ensuring that the claims made “are fair, clear, and not misleading, and consistent with the sustainability profile of the product or service.”
The FCA rules introduce four labels intended to help consumers to differentiate between the sustainability objectives and investment approaches of investment products. These include Sustainability Focus, for products that aim to invest in assets that are environmentally and socially sustainable; Sustainability Improvers, investing in assets that have the potential to improve environmentalEnvironmental criteria consider how a company performs as a steward of nature. and/or socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. sustainability over time; Sustainability Impact, investing with an aim to achieve a predefined positive and measurable environmentalEnvironmental criteria consider how a company performs as a steward of nature. or socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. impact, and; Sustainability Mixed Goals, a newly introduced category for funds that invest across different sustainability objectives and strategies aligned with the other categories. The rules include a series of criteria for products to use the labels, including a requirement for at least 70% of the products assets to ordinarily be invested in line with the label’s objective, as well as pre-contractual and ongoing product-level disclosures for products using a label.
The FCA package also includes naming and marketing rules for investment products, aimed at ensuring the accurate use of sustainability-related terms. The rules states that sustainability-related terms can only be used in product names and marketing if a label is used, or, if not using a label, the product’s name accurately reflects the products characteristics, but “the terms ‘sustainable’, ‘sustainability’, ‘impact’ and any variation of those terms must not be used.” Non-labelled products using sustainability-related names would also be required to produce the same types of disclosures as labelled products.
Implementation timelines outlined in the new policy paper begin with the anti-greenwashing rule, which comes into effect at the end of May 2024, with firms allowed to begin using the labels at the end of July 2024, and naming and marketing rules coming into force in December 2024. Ongoing product-level disclosures will be required by large firms from December 2025, and smaller firms a year later.
Welcoming the new policies, James Alexander, Chief Executive of the UK Sustainable Investment and Finance Association (UKSIF), said:
“This is an important moment in our industry’s efforts to build greater confidence and trust among retail investors in the UK’s evolving sustainable investing market. We believe that the new investment labels can address concerns often raised by savers over their funds’ sustainability claims and profile.”
Click here to access the new FCA policy statement.