ESG: FCA CP on sustainability disclosure and investment labelling

Update: the fuller summary of the FCA’s CP22/20 to which we refer below can be found here.

The FCA has today published consultation paper CP22/20, 'Sustainability Disclosure Requirements (SDR) and investment labels' (the CP).

In it, the FCA sets out proposals for “increasing transparency on the sustainability profile of products and firms and reducing the risk of harm arising from greenwashing”.

We will be reviewing the CP and publishing a summary of the key issues in the form of a client note shortly.

What’s the background?

In November 2021, the FCA launched DP21/4, seeking views on a new sustainable disclosures and investment labelling regime given concerns that firms might be making exaggerated, misleading or unsubstantiated sustainability-related claims about their products (‘greenwashing’).

For our summary of that DP see here.

The DP set out proposals to establish a three-tiered product labelling and sustainability disclosure regime for the UK, covering:

• Product label - a standardised product classification and labelling system
• Consumer-facing disclosures - containing key product-level information in the form of standardised information on the product's key sustainability attributes
• Detailed disclosures at product and entity level - on sustainability risks, opportunities and impacts. This is more granular information intended for institutional investors and other stakeholders.

As we reported in July, publication of a CP to take this work forward was pushed back from Q2 2022 to allow time to take account of other international policy initiatives and to ensure stakeholders have time to consider these issues.

On the back of the ‘broadly positive’ feedback that the DP received, today’s CP proposes new rules to help consumers “navigate an increasingly complex investment product landscape, protect them from greenwashing, and rebuild trust”.

The FCA notes that it has sought to achieve, as far as possible, international coherence with other regimes – notably the EU’s SFDR and the SEC’s proposals in the US.

Next steps

The consultation period closes on 25 January 2023.

The FCA will then review feedback received to the CP and intends to set out its final rules “by the end of the first half of 2023”.

It is proposing that the final labelling, naming and marketing and initial disclosure requirements would not come into effect until at least 30 June 2024 (i.e., a year after it intends to publish its final rules).

However, the proposals also include a general ‘anti-greenwashing’ rule, which would apply to all regulated firms, requiring sustainability-related claims to be clear, fair and not misleading. This rule would come into effect immediately on the publication of the FCA’s Policy Statement.

The CP’s proposals focus on funds and portfolio management based in the UK but the FCA notes that it will “build on the proposals in this paper” through further consultations in due course, with a view to expanding scope of the regime to include overseas and pension products.