A&O Shearman | FinReg | UK Financial Conduct Authority Publishes Discussion Paper on Sustainability Disclosure Requirements and Investment Labels
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  • UK Financial Conduct Authority Publishes Discussion Paper on Sustainability Disclosure Requirements and Investment Labels

    The U.K. Financial Conduct Authority has published a discussion paper on its proposed Sustainability Disclosure Requirements and sustainable investment labels. The FCA is seeking initial views on these proposals with the intention of consulting on fuller policy proposals in Q2 2022. Responses to the discussion paper may be submitted until January 7, 2022. These proposals link to the U.K. government's ambitions on climate change and green finance, detailed in its October policy paper, Greening Finance: A Roadmap to Sustainable Investing, further details of which are set out in our related client note.

    The FCA wishes to encourage the growing market in financial products that target sustainability objectives but is keen to ensure adequate regulation is in place. The discussion paper therefore proposes:
    • Sustainability Disclosure Requirements for certain FCA-regulated asset owners and asset managers. The SDR regime would comprise:
      • Product labels: the FCA believes that a standardized product classification and labelling system would help consumers and investors to understand the sustainability nature of the different types of products available;
      • Consumer-facing product-level disclosures which would set out the key sustainability information about investment products; and
      • Detailed product and entity disclosures intended for institutional investors covering sustainability risks, opportunities and impacts.

    The disclosure rules will be aligned with the recommendations of the Taskforce on Climate-related Financial Disclosures but will have a broader scope beyond climate change. The FCA is also seeking views on the extent to which the SDRs can remain consistent with the EU Sustainable Finance Disclosure Regulation, for the benefit of U.K. entities with cross-border business.
    • Sustainable investment labels on certain investment products, which will describe the sustainability characteristics of the product in question. At this stage, the FCA's preferred proposal would be to apply the labelling requirement to all investment products available to retail consumers (not just those that are being marketed as sustainable) and to have five categories, ranging from "Not promoted as sustainable" to "Impact (objective of delivering positive environmental or social impact)". The U.K. did not onshore the EU SFDR as part of its Brexit legislation onshoring process but the FCA is considering an indicative mapping of the proposed labels to provisions of the EU SFDR.

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