FCA unveils SDR investment labels
FCA unveils SDR investment labels to fight greenwashing in its public consultation regarding Sustainability Disclosure Requirements (SDR) that include three types of investment labels that can be used to identify environmentally sustainable investments.
These include: Sustainable focus, sustainable improvement and sustainability impact.
Sustainable focus is used for investments into assets which are ecologically or socially sustainable. Sustainable improvers refers to products that invest in assets that will improve sustainability of the environment or society over time . Sustainable impact is a term used to describe products that are investing in solutions for social or environmental issues with an impact that is quantifiable.
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In the new regulations the new requirements will impose restrictions regarding how certain terms , such as “ESG”, “green” or sustainable’ can be utilized in product names and marketing. The deadline for firms is June 2024 to revise their product information and meet the initial disclosures.
The new SDR regime will also require firms to make consumer-facing disclosures to explain the key sustainability-related features of an investment product, as well as more detailed disclosures for professional investors.
The latter will include: pre-contractual disclosures, such as in the fund prospectus, covering the sustainability-related features of investment products; ongoing sustainability-related performance information, including key sustainability-related performance indicators and metrics, in a sustainability product report; and a sustainability entity report, covering how firms are managing sustainability-related risks and opportunities.
In the course of the discussion, the FCA has announced that it will intensify its enforcement strategies and examine the response of firms to the requirements laid out in the “dear chair” letter sent to authorized fund managers in the month of July 2021.
Sacha Sadan, director of the FCA’s environment, Social and Governance, stated: “Greenwashing misleads consumers and reduces confidence in the entire range of ESG products. Customers must have confidence in products that advertise as sustainable, but they are actually sustainable. Our proposed regulations will help companies and consumers build trust in this industry.
“This helps to invest in the solution of some of the most pressing ESG problems. This puts the UK in the forefront of sustainable investments globally. We are setting the bar higher by establishing robust standards for regulation to safeguard investors as part of our overall FCA plan.”
The consultation period is open until January 25, 2023, with the final regulations expected to be announced before the end of first quarter of 2023. Additional consultations to expand the scope and scope of the rules is planned in the near future The FCA stated, and will include applying the regulations to foreign products.
