By Zhuan Faraj
On 25 October 2022, the FCA published its Consultation Paper CP22/20, Sustainability Disclosure Requirements (SDR) and investment labels. The Consultation Paper sets out in detail proposals for a sustainable investment products labelling regime in the UK, and will be relevant to all FCA regulated firms.
Broadly, the labelling regime distinguishes between three types of sustainable products:
- Sustainable Focus - products which invest in assets that are environmentally and/or socially sustainable;
- Sustainable Improvers - products which invest in order to improve the environmental and/or social sustainability of assets over time, including in response to the stewardship influence of the firm; and
- Sustainable Impact - products which invest in solutions to environmental or social problems, to achieve positive, real-world impact.
Whether or not a product has one of the three sustainable investment labels outlined above, under these proposals firms will need to produce consumer-friendly disclosures to help consumers understand the key sustainability-related features of an investment product.
There is also a proposed requirement for more detailed disclosures at product and entity level, namely:
- Pre-contractual disclosures covering the sustainability-related features of investment products, both for products which use a label and for products that do not use a label but which have sustainability-related features that are integral to their investment strategy;
- A sustainability product-level report containing ongoing sustainability-related performance information for products which use a label; and
- A sustainability entity-level report covering how the firm is managing sustainability-related risks and opportunities, regardless of whether an in-scope firm uses a sustainability label.
Where products do not use a sustainable investment label, there are proposed naming and marketing rules restricting the use of certain sustainability-related terms in product names and marketing materials. Distributors are also required to ensure that product-level information (including the labels) is made available to consumers.
Finally, the Consultation Paper contains a general anti-greenwashing rule, which applies to all regulated firms and reiterates existing rules to clarify that sustainability-related claims must be clear, fair and not misleading.
The consultation period closes on 25 January 2023, and, subject to the feedback received, the FCA intends to publish its final rules and guidance in a Policy Statement by the end of the first half of 2023. A copy of the FCA’s consultation can be found here.