FCA Publishes Consultation Paper on Sustainability Disclosure Requirements

Following its 2021 Discussion Paper, the FCA has published a consultation paper setting out proposals to enhance sustainability disclosure and labeling requirements for sustainability-linked investment products. The majority of the rules will apply only to fund and asset managers, although the FCA is considering expanding this to FCA-regulated asset owners in relation to their investment products and for certain rules to apply to distributors of investment products to U.K. retail investors. The proposals are directed at fund and asset managers and portfolio managers based in the U.K. The FCA will consult separately on how these proposals apply to overseas fund and asset managers. The FCA already has climate-related disclosure rules for premium listed issuers, as well as rules for standard listed issuers and certain FCA-regulated firms (asset managers, life insurers, pure reinsurers and FCA-regulated pension providers).

The rules have been prompted by FCA concerns that firms are making misleading claims about the sustainability of their investment products and that it is difficult for consumers to compare sustainability-linked products due to a lack of standardized reporting. The FCA seeks to introduce standards aligned with the recommendations of the Task Force on Climate-Related Financial Disclosures. As far as possible, the FCA's proposals aim to align with other international regimes, e.g., the EU Sustainable Finance Disclosure Regulation and US Securities and Exchange Commission proposals. However, some differences emerge due to the consumer-focused labeling regime that sits alongside the FCA disclosure obligations.
 
Key proposals in the new rules are:
 

• Sustainable investment labels, which will classify investment products according to the sustainability outcome they aim to achieve (e.g., that they invest in assets which are themselves sustainable, they invest in improving the sustainability of assets over time or they invest in providing solutions to environmental or social problems). Products that are not labeled will have to meet the naming and marketing rules.
• Consumer-facing disclosures, including the product's sustainability objective, investment approach and performance.
• More detailed disclosures that are directed at a broader audience than just consumers e.g., at institutional investors or retail investors looking for more detailed information on the product or entity in question. These disclosures include pre-contractual disclosures, ongoing sustainability-related performance information in a sustainability product report and a sustainability entity report.
• Naming and marketing rules, which will limit the use of certain sustainability-related terms in product names and marketing materials unless a sustainable investment label is used.
• A new "anti-greenwashing" rule, which will apply to all regulated firms (not just fund and asset managers) and will require sustainability-related claims to be clear, fair and not misleading.
• A requirement that distributors of sustainable products to U.K. retail investors will need to make the sustainable investment label and consumer disclosures available to investors.

General anti-greenwashing rules are due to come in immediately upon publication of the final Policy Statement (provisionally H1 2023).
 
The labeling, initial disclosure requirements and naming and marketing rules are not due to come into force until June 30, 2024, one year after the intended publication date of the final rules, to give firms time to adjust to the new rules.
 
Ongoing sustainability disclosures and entity-level disclosures will provisionally come into force from June 2025 (with the latter being introduced on a staggered basis, beginning with the largest firms).
 
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