FCA’s Policy Statement 23/16: Sustainability Disclosure Requirements (SDR) and investment labels

28/11/2023

Further to the FCA’s CP22/20 the FCA has published, on 28 November, its final rules and guidance to help consumers navigate the market for sustainable investment products (“PS23/16”).

There is a huge amount of detail within PS23/16, and we will be providing more extensive commentary in the days to come. For now, we have highlighted the main changes from CP22/20, included the amended implementation timeline and a summary of the final package. 

What is changing in response to CP22/20?

Most of the CP22/20 proposals have been amended – some more significantly than others – to reflect the industry feedback received by the FCA. Some of the more material changes are:

  • The addition of a fourth label: “Sustainability Mixed Goals”:

The FCA has responded to stakeholders who asked for the rules to accommodate funds that invest in blend of strategies within the regime by introducing a fourth label to the already proposed Improvers, Focus and Impact labels being “Sustainability Mixed Goals” for funds that invest across different sustainability objectives and strategies which would not fit neatly into one of the three proposed categories. Funds using this new label will need to meet the requirements of the specific criteria for each of the other labels the fund is invested across.

  • “Sustainability” instead of “Sustainable”:

The names of the labels are also changing from “Sustainable” (i.e. from Sustainable Improvers, Sustainable Focus and Sustainable Impact) to “Sustainability” (i.e. Sustainability Improvers, Sustainability Focus, Sustainability Impact and of course the new Sustainability Mixed Goals) to reflect that some assets are on a journey to becoming sustainable, and to avoid consumers getting the impression that all labelled funds are invested in assets that are already sustainable.

However, the FCA remain clear that the labels are only to be used for products seeking positive sustainability outcomes and have amended the naming and marketing rules to help differentiate between such funds and those that may have some ESG characteristics without seeking particular positive outcomes.

  • Use of sustainability-related terms:

Stakeholders raised concerns that the FCA’s proposals for the use of sustainability-related terms were too restrictive and asked for rules that enable firms to communicate important and factual information about products. The FCA has updated the rules to allow for the use of most sustainability-related terms if certain conditions are met and, as noted above, to differentiate products which although not seeking a positive outcome nevertheless apply ESG criteria.

  • 70% threshold:

The FCA also confirmed it will introduce a 70% threshold across all labels, not just the Focus label, which will require firms to have at least 70% of the gross value of the product's assets invested in line with its sustainability objective.

  • Guidance on anti-greenwashing:

Some of the feedback received following CP22/20 asked for additional guidance on the anti-greenwashing rule. The FCA is therefore consulting on new guidance to sit alongside rules in the PS.

What does the final package include?

In summary, the FCA is introducing:

  • An anti-greenwashing rule for all FCA-authorised firms to reinforce that sustainability-related claims must be fair, clear and not misleading. The FCA is also consulting on supporting guidance.
  • Naming and marketing rules for investment products, to ensure the use of sustainability-related terms is accurate.
  • Four labels to help consumers navigate the investment product landscape and enhance consumer trust.
  • Consumer-facing information to provide consumers with better, more accessible information to help them understand the key sustainability features of a product.
  • Detailed information targeted at institutional investors and consumers seeking more information in pre-contractual, ongoing product-level, and entity-level disclosures.
  • Requirements for distributors to ensure that product-level information (including the labels) is made available to consumers.

When will the new rules come into force?

The rules and guidance come into force on the following dates:

A more detailed analysis of the changes will follow shortly.