The FCA Sustainability Disclosure Requirements (SDR) published today (28 November 2023) by the Financial Conduct Authority (FCA) set out new rules to curb greenwashing in investments and label sustainable funds.
Financial firms have now been warned to prepare for new anti-greenwashing rules, and UK asset managers need to decide whether to label products that aim to achieve sustainable outcomes.
Under the new regulations, the FCA will have the power to review and challenge new funds submitted to be authorised, and could take enforcement action where greenwashing has occurred.
80% of consumers want their money to “do good and deliver a return”, but greenwashing is rife and sustainability claims can be confusing.
The policy statement and final rules were originally due to be published by the end of Q2, but due to significant feedback it received, the FCA delayed the publication.
The rules now state that:
From May 2024, all FCA-authorised companies will be subject to anti-greenwashing rules – building on the existing requirement that marketing of financial products/services must be: clear, correct, complete and fair
Asset managers in the UK will be banned from using vague references to “sustainability” to market their funds
Asset managers marketing their funds as sustainable will have to choose 1 of 4 specific fund labels – the labels will be called: Sustainability Impact; Sustainability Focus; Sustainability Improvers; and Sustainability Mixed Goals
The regulator will introduce a 70% threshold across all labels, requiring firms to have at least 70% of the gross value of the product’s assets invested in line with its sustainability objective
Funds using these labels, or making sustainability-related claims in any marketing, will have to publish a prominent and clear summary for retail clients (max. 2 pages), based on an independently assessed standard (such as Science Based Targets)
Sustainability characteristics can relate to the environmental and / or social aspects of products and services. The FCA expects such sustainability references to be:
- Correct and capable of being substantiated through evidence
- Clear and presented in a way that can be understood
- Complete: considering the full life-cycle of the product or service and not obscuring important information
- Fair and meaningful in relation to comparisons to other products or services
The labelling regime will become effective on 31 July 2024, when firms will be expected to begin using the relevant labels and disclosures. The naming and marketing rules will follow, with a deadline of 2 December 2024. Overall, the rollout of the SDR will take 3 years with a post-implementation review after 3 years.
The FCA will now consult on the anti-greenwashing rules. Replies can be submitted until 26 January 2024.
The full PS23/16 Policy Statement is available here.
This article has been prepared for general informational purposes only and is not intended as legal advice.
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