FCA Opens Sustainability Disclosure Requirements (SDR) Consultation

The FCA has opened the Sustainability Disclosure Requirements (SDR) and investment labels consultation. Some key points below from our first glance:

Key dates

• Consultation closes on 25 January 2023

• Final rules expected 30 June 2023

• Implementation not before 30 June 2024

  • Labelling, naming and marketing, certain disclosure requirements: provisionally 30 June 2024

  • Ongoing sustainability performance-related disclosures: provisionally 30 June 2025

  • Entity level disclosures: provisionally 30 June 2025

Consultation here: https://www.fca.org.uk/publication/consultation/cp22-20.pdf

Sustainable Investment Labels

The labelling regime proposal sets out three labels:

• Sustainable focus (in assets that are environmentally and/or socially sustainable)

• Sustainable improvers (to improve the environmental and/or social sustainability of assets over time, including in response to the stewardship influence of the firm)

• Sustainable impact (in solutions to environmental or social problems, to achieve positive, real-world impact)

There is no hierarchy between the proposed categories: each type of product is designed to deliver a different profile of assets, and to meet different consumer preferences.

The proposal is that firms may choose whether or not to label their products, but will of course need to meet proposed qualifying criteria to do so. Firms not meeting the criteria would be restricted from using sustainability-related terms in product names and marketing.

We see the inclusion of "Sustainable Improvers" as a helpful addition, not well covered by comparable regulation elsewhere.

Disclosures

• Consumer-facing product-level disclosures – accessible, consumer-friendly disclosures to help explain key sustainability-related features of an investment product. Required for products with or without a sustainable investment label, though more limited if a product does not have a label.

• More detailed disclosures at product and entity level – more granular disclosures targeted at institutional investors, or retail investors seeking more information.

  • Pre-contractual disclosures – setting out sustainability related-features

  • Ongoing sustainability-related performance information in a “sustainability product-level report” – required for products that use a label.

  • Entity-level disclosures – “sustainability entity report” on how firms are managing sustainability-related risks and opportunities. Required for all in scope firms, regardless of whether they use a label. Note entity-level disclosures are only required for firms >£5bn in AUM.

These disclosures in many ways mirror those of SFDR in that basic disclosures are still required even if you do not have a sustainability labelled product. This means all FCA regulated firms will have some kind of disclosure obligation under the new proposal.

Naming and marketing rules

This includes a general ’anti-greenwashing’ rule clarifying that sustainability-related claims must be clear, fair and not misleading. The proposal restricts the use of sustainability-related terms in the naming and marketing of products offered to retail investors that do not use a sustainable investment label.

Scope

Certain elements of the proposal appear to be required for UK regulated managers when dealing with retail investors, and optional when dealing with institutional investors.

We remain open for any discussion and will continue to share more in due course.