A&O Shearman | FinReg | UK Financial Conduct Authority Publishes Policy Statement on Sustainability Disclosure and Labeling Regime
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  • UK Financial Conduct Authority Publishes Policy Statement on Sustainability Disclosure and Labeling Regime

    The U.K. Financial Conduct Authority published on November 28, 2023 its final policy statement on its new sustainability disclosure requirements and investment labels. The regime is intended to improve the integrity of the market and enhance consumer protection. It forms part of the U.K.'s broader strategy for enhancing protections around sustainability-related products and services, which includes guiding principles for sustainable investment funds, a Roadmap to Sustainable Investing and the 2023 Green Finance Strategy. The new rules enter into force on a staggered basis, as described below.

    The firms captured by the regime vary depending on the rule in question. The rules consist of:
    • An anti-greenwashing rule, requiring FCA-authorized firms to ensure their sustainability-related claims are fair, clear and not misleading, coming into force on May 31, 2024. The FCA is consulting on guidance for the rule, to clarify its expectations.
    • A labeling regime for U.K. asset managers to identify financial products that seek to achieve positive sustainability outcomes. There will be four labels: "Sustainability Focus", "Sustainability Improvers", "Sustainability Impact" or "Sustainability Mixed Goals". Firms can choose to use the labels for which their products meet the general and specific qualifying criteria—it is not obligatory to adopt the labels should firms choose not to do so. The general criteria fall under five key themes: having a sustainability objective; having an appropriate investment policy and strategy; establishing KPIs to measure progress against the sustainability objective; having appropriate resources and governance to support the sustainability objective; and identifying a stewardship strategy to deliver the sustainability objective. There are also specific criteria which apply to each individual label. Firms can begin to use the labels from July 31, 2024.
    • Naming and marketing rules for U.K. asset managers that make products available to consumers but do not use labels, which come into force on December 2, 2024. These firms will only be able to use sustainability-related terms in product names and marketing if they comply with product naming and marketing requirements.
    • Disclosure requirements for U.K. asset managers, including an obligation to produce clear, concise disclosure for consumers and detailed pre-contractual and product-level disclosure for institutional investors and consumers seeking further information. Firms should make pre-contractual disclosures from the date a label is first used, or from December 2, 2024 for products using sustainability terms without a label. Product level disclosures should be published 12 months after the date that the label or sustainability term is used or, for those using labels, provided to eligible clients on demand from December 2, 2025. In-scope fund managers with more than £50 billion in assets under management should make entity-level disclosures on various aspects of their governance, strategy, risk management and metrics from December 2, 2025, while those with more than £5 billion AUM must do so from December 2, 2026.
    • Obligations upon distributors of financial products to communicate labels from July 31, 2024 (where labels are being used) and to provide access to consumer-facing disclosures, as well as including a notice on overseas products that they are not subject to the regime. The overseas funds notices must be included from December 2, 2024.

    The FCA plans to consult on extension of the sustainability disclosure regime in the future, including to portfolio management, overseas funds and pension products.

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