FCA updates sustainability disclosure and greenwashing rules for UK investors

The Financial Conduct Authority (FCA) has introduced an additional green label under its Sustainability Disclosure requirements and investment label regime, after the UK regulator confirmed further details of its plans to tackle greenwashing of asset managers in a new policy statement today (28 November). to grab.

The new label – titled ‘Sustainability Mixed Goals’ – expands the overall scope of the regime by bringing the total number of labels to four. The aim of the new label is to address issues arising during the consultation process on multi-asset and blended investment strategies, which the label considers do not fit into the previous three categories.

Following feedback, the FCA has also removed the word ‘sustainable’ from the labels and replaced it with ‘sustainability’, to reflect how some assets are ‘on the way to becoming sustainable’, the report said. The updated labels will now be called: Sustainability Impact; Sustainability focus; Sustainability improvers; and sustainability mixed objectives.

The regulator also confirmed plans to introduce a threshold for all labels, requiring companies to invest at least 70 percent of the gross value of a fund’s assets in line with its stated sustainability target.

New anti-greenwashing, naming and marketing rules will also be introduced under the new Sustainability Disclosure Requirements (SDR) regime, with a two-month consultation on the greenwashing rules launched today. It comes ahead of plans for these rules to come into effect at the end of May next year, requiring asset managers to make fair, clear and non-misleading statements about the sustainability profile of their products and services, the FCA said.

Although the SDR regime currently only applies to UK asset managers, the FCA said it plans to consult on proposals in early 2024 to extend their reach to also apply to wider portfolio management, including managed portfolios and discretionary asset management services.

Other SDR plans unveiled today include the establishment of an independent working group for the financial advisory sector to work together to build on existing sustainable finance capabilities, and look at how the SDR and labels support their role. The regulator also said it will continue to explore how to clarify its expectations for advisers when it comes to considering sustainability issues in investment advice and suitability.

The FCA’s package of measures aims to minimize greenwashing and increase consumer confidence in sustainable financial products. It estimates that there are $18.4 trillion of ESG-oriented (environmental, social and governance) assets under management globally, but has warned that consumers do not trust that sustainability-related claims about investments are real.

“We are introducing a simple, easy-to-understand regime so that investors can assess whether funds meet their investment needs. This is a crucial step for consumer protection as sustainable investing becomes increasingly popular,” explains Sacha Sadan, director of ESG at the FCA. .

“By increasing confidence in the sustainable investment market, Britain will be able to maintain its position at the forefront of sustainable finance and reap the benefits of being a leading international investment centre.”

James Alexander, CEO of the UK Sustainable Investment Federation (UKSIF), hailed the changes outlined by the FCA as “an important moment in our industry’s efforts to build greater confidence among retail investors in the evolving sustainable investment market.” investing in the UK”.

“We believe that the new investment labels can address the concerns that savers have often expressed about the sustainability claims and profile of their funds,” he said.

“We welcome a number of important revisions to the regime to address potential implementation issues and promote greater transparency for savers,” Alexander added. “These include refining some of the underlying criteria for the labels and the operation of the marketing rules, as well as directly recognizing the important role of multi-asset funds and blended strategies under the regime.”

However, he called on the FCA to consider setting up a new task force or industry group on an ongoing basis to “help implement the regime in the market and monitor the risks of greenwashing”.

“Crucially, the regulator must continue to work closely with regulators in overseas markets to positively shape jurisdictions’ approaches to disclosures and fund labeling and promote international harmonisation,” he explained.

Meanwhile, Iona Silverman, intellectual property and media partner at law firm Freeths, said the FCA proposals outlined today were “overdue” but were “little in detail”.

“Both financial advisors and consumers need transparency to enable informed decision-making when investing,” she said. “The Competitions and Markets Authority (CMA) and the Advertising Standards Authority (ASA) have gone much further in their regulation of greenwashing in consumer advertising, with the CMA’s Green Claims Code and the ASA’s frequent statements about some misleading ‘green ‘ advertising entails .

“The FCA needs to up its game and do much more to reassure investors that they are making the right choices.”

A version of this article originally appeared on Investment Week.

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