The Financial Conduct Authority (FCA), the conduct regulator for financial services firms and financial markets in the UK, announced the launch of a consultation on a new proposal to extend its new Sustainability Disclosure Requirements (SDR), including rules aimed at helping investors assess the sustainability attributes of investment products, and to avoid greenwashing risk, to portfolio managers.

The proposal follows the release by the FCA of its SDR requirements for asset managers in November 2023, which included an anti-greenwashing rule for sustainability-related product claims, as well as rules for naming and marketing funds based on their sustainability characteristics, and for the use of a new sustainable investment product labelling regime.

While the initial SDR was developed primarily for retail investors, the new proposal would extend the requirements to firms that manage a group of investments for consumers, with a focus on wealth management services for individuals and model portfolios for retail investors, with the FCA noting that firms that offer portfolio management services to professional clients will not be subject to the naming and marketing requirements.

The initial SDR included an anti-greenwashing rule, ensuring claims about the environmental or social characteristics of financial products or services “are fair, clear, and not misleading, and consistent with the sustainability profile of the product or service,” as well as naming and marketing rules for investment products, requiring that sustainability-related terms can only be used in product names and marketing if a label is used, or if a label is not used, the product’s name accurately reflects the products characteristics, but without using terms such as ‘sustainable’, ‘sustainability’, or ‘impact.’

The labelling regime introduced four labels – including Sustainability Focus, Sustainability  Improvers, Sustainability Impact, and Sustainability Mixed Goals – intended to help consumers to differentiate between the sustainability objectives and investment approaches of investment products, along with criteria for the use of each label.

Under the new proposal, portfolio managers would be subject to the new naming and marketing rule on December 2, 2024, the same date as asset managers, and would also be able to begin using the labels at the same time. Firms with assets under management greater than £50 billion would be required to begin providing product-level disclosures under the SDR from December 2025, and those with AUM greater than £5 billion from December 2026.

Click here to access the proposal to extend the SDR to portfolio managers.

Alongside the new proposal, the FCA also released new guidance for firms to help meet the new rules. In its new finalized guidance, the FCA noted that it received feedback from stakeholders that was “broadly positive and supportive,” with the new document providing responses to the feedback, including clarifying the scope of the rule, adding examples of good practice, and confirming that the anti-greenwashing rule will come into effect at the end of May 2024.

Click here to access the finalized guidance.

Sacha Sadan, FCA’s Director of Environmental, Social and Governance, said:

“Confirming the new anti-greenwashing guidance and our proposals to extend the Sustainability Disclosure Requirements and investment labels regime are important milestones that maintain the UK’s place at the forefront of sustainable investment. Our good and poor practice anti-greenwashing examples will help firms market their products in the right way.”