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FCA SDR, investment labels and anti-greenwashing policy

Corporates need to be aware of the FCA's new anti-greenwashing and disclosure regime for investors.

After extended delays to consider industry feedback, the FCA Policy Statement is now published (PS23/16), containing final rules and guidance on its Sustainability Disclosure Requirements (SDR) and investment labels regime, along with a consultation (GC23/3) on the accompanying anti-greenwashing guidelines. The FCA will also soon also be consulting on a UK Green Taxonomy, to provide investors with definitions of which economic activities should be labelled as green, and support the quality of standards, labels and disclosures used in the industry for green finance activity.

The recent package of measures (which builds on the 2022 FCA consultation CP22-20), includes:

  • an anti-greenwashing rule for all authorised firms (ESG 4.3.1R, see below, with implementation from 31 May 2024);
  • an additional fourth “sustainability” investment label (see below);
  • new rules and guidance for firms marketing investment funds on the basis of their sustainability characteristics; and
  • detailed information in pre-contractual, ongoing product-level and entity-level disclosures, aimed at institutional investors and consumers wanting more information.

These final SDR rules are largely similar to those the FCA previously consulted on, but with some changes to reflect industry feedback. In particular:

  • a fourth label of “Sustainability Mixed Goals” has been introduced for multi-strategy products that didn’t neatly fit within the other 3 labels,
  • discretionary portfolio management has been excluded for the time being (the FCA intends to consult on labelling proposals for discretionary portfolios in Q1 2024), and
  • the ‘naming and marketing rule’ (which the industry thought was too restrictive) has been relaxed, allowing retail funds that do not qualify for a label to use ESG terms (such as ‘green’, ‘net-Zero’, ‘responsible’) in their names or marketing documents provided certain conditions are met (akin to the EU’s SFDR pre-contractual and reporting requirements). However, no fund may include the word “sustainable” or “impact” in its name if it does not use a label.

Regarding the requirements for sustainability-related reporting, additional disclosures will be required where asset managers offer products using sustainability labels or sustainability-related terms in product names or marketing. However, all UK regulated asset managers (regardless of whether their funds use the sustainability labels or not) will be required to publish an entity level sustainability report on how they manage sustainability risks and opportunities within their governance, strategy, risk management, and metrics and targets (akin to TCFD disclosures). The FCA also agreed with some respondents that disclosure of a firms’ impacts on the environment or society would be useful for clients and consumers, so the FCA has added a Handbook guidance provision stating that firms should consider disclosing their impact on the environment and/or society, having regard to the GRI Standards.

The new anti-greenwashing rule (ESG 4.3.1R) requires all FCA-authorised firms to ensure that any reference they make to the “sustainability characteristics” of their financial products and services (which can relate to environmental or social aspects) is:

  • consistent with the sustainability characteristics of the product or service; and
  • clear, fair and not misleading.

The FCA has also issued a consultation (GC23/3) on the accompanying anti-greenwashing guidelines (closing 26th January). The draft guidelines set out four requirements for sustainability claims, which 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 lifecycle of the product/service; and
  • fair and meaningful in relation to any comparisons to other products or services.

Regarding timetable, implementation will be staggered with:

  • the anti-greenwashing rule and guidelines become effective from 31 May 2024;
  • in-scope firms able to use the investment labels from 31 July 2024;
  • the ‘naming and marketing’ rules coming into force from 2 December 2024;
  • the ongoing product-level and entity-level disclosures for firms with AuM in excess of £50bn coming into force from 2 December 2025; and
  • entity-level disclosure rules extended to firms with AuM over £5bn from 2 December 2026.

Published 30 November, 2023