FCA finalises anti-greenwashing rules and proposes extension to SDR

The FCA (Financial Conduct Authority) has released 2 updates to its sustainable finance regime, including the finalisation of the anti-greenwashing rule and a proposal to extend the Sustainability Disclosure Requirements (SDR) and labelling regime to portfolio managers.

Anti-greenwashing rule

The FCA has confirmed the details of its anti-greenwashing rule, which will apply to all FCA authorised firms from 31 May 2024. The final guidance takes into account feedback provided via consultation earlier in the year.

The final rules are broadly unchanged – see our summary here - but the FCA has provided additional examples of how the rules will be applied across different sectors as well as clarity on its expectations, timeline, and the rule’s interaction with other elements of the FCA Handbook. Examples of “good practice” have also been published “to illustrate how the core principles of the guidance can be applied”.

As we explained previously, the anti-greenwashing rule covers all communications about financial products or services where they refer to environmental and/or social characteristics. This includes images on websites, content of marketing materials, policies, fund documents, targets and other communications and claims. The FCA’s recommends its 4Cs approach, i.e. that sustainably references should be:

• Correct and capable of being substantiated

• Clear and presented in a way that can be understood

• Complete – they should not omit or hide important information and should consider the full life cycle of the product or service

• Comparisons to other products or services are fair and meaningful

See here for further details and examples of how this guidance should be applied.  

Extension of SDR to portfolio management services

As part of a separate consultation process, the FCA has published Consultation Paper (CP24/8) which proposes extending the SDR and investment labelling regime to portfolio management service providers. This follows and integrates responses from an earlier consultation: CP22/20. The latest consultation will be open until 14th June 2024.

As we have previous written, the SDR package includes not only the anti-greenwashing rule, but also 4 voluntary investment labels, new rules for firms marketing investment funds based on their sustainability characteristics, and associated disclosure requirements. It is primarily focused on retail investors, with some limited provision for institutional investors.

The latest proposal seeks to extend the SDR labelling regime to wealth management services for individuals and model portfolios for retail investors.

It also proposes allowing institutional investors to “opt in” to the labelling regime, which would then require them to “produce and either publish or provide the associated detailed disclosures to those clients”. Importantly however, they are “not proposing that portfolio managers offering services to professional clients be subject to the specific naming and marketing requirements”, as they do not yet consider this “proportionate”. The anti-greenwashing rules will still apply however.

It also exempts services “where the clients are based overseas (i.e., those that either normally reside outside of the UK or have their registered office (or head office) outside of the UK)” and “does not include portfolio management provided to a client that is a fund, or an Alternative Investment Fund Manager or management company for or on behalf of a fund (ie, where the portfolio manager acts as a delegate)”.

The proposed extension for portfolio managers would work as follows:

The FCA also clarified that “asset managers who are not using [SDR] labels but are using sustainability‑related terms in their naming and marketing will not need to comply with the additional naming and marketing rules or produce the associated disclosures under the SDR and labelling regime until 2 December 2024. However, they must still comply with the anti‑greenwashing rule from 31 May 2024 and ensure their sustainability claims are fair, clear and not misleading and consistent with the sustainability characteristics of the product and service”.

For more information on how you may be affected or for assistance with implementation, please get in touch.