FCA confirms final SDR and labelling guide

November 29th, 2023

The Financial Conduct Authority (FCA) has revealed its final Sustainability Disclosure Requirements (SDR) and investment label regime, including a new ‘mixed goal’ label.

The final statement outlines the new labelling categories: sustainability impact, sustainability focus, sustainability improvers, and sustainability mixed goals.

The sustainability mixed goals label was added following a consultation process launched in October 2022.

Respondents were concerned that funds invested with a combination of the attributes of the focus, improvers and/or impact labels would not qualify for a label under the proposals.

The labels have also been updated to use the term ‘sustainability’ over ‘sustainable’, as some stakeholders did not consider the term ‘sustainable’ appropriate for the name of the label while the product is ‘improving’ its sustainability.

Firms can use the investment labels from 31 July 2024.

FCA consulted on a tiered approach to disclosures, requiring firms to produce consumer-facing disclosures, pre-contractual disclosures, ongoing product-level disclosures and entity-level disclosures.

Under the SDR, firms are required to disclose any assets held for reasons other than to pursue the sustainability objective of a product and have an escalation plan to be enacted if the assets do not demonstrate sufficient performance against the sustainability objective.

In addition to the other measures, all sustainable investment products are required to disclose further information for investors.

The package of measures aims to improve trust and transparency in the market for sustainable investment products and prevent greenwashing.

Alongside the labelling regime, the measures include an anti-greenwashing rule for all authorised firms to make sure sustainability-related are fair, clear and not misleading. The rule will come into force on 31 May 2024 following on a consultation period on the proposed guidelines to help firms implement the rule.

The regulator also introduced naming and marketing rules within the package, which apply to products made available to retail investors that do not use one of the labels. The rules outline that firms can only use sustainability-related terms if certain conditions are met, including producing disclosures.

Sacha Sadan, director of ESG FCA, said: “By improving trust in the sustainable investment market, the UK will be able to maintain its position at the forefront of sustainable finance, and capture the benefits of being a leading international centre of investment.”

The FCA delayed publishing the SDR twice before its release, with the rules originally set to be published in the first half of 2023.