Sustainability Disclosure Requirements and Investment Labels

Sustainability Disclosure Requirements and investment labels: the UK's takeSummary

The FCA has published its consultation on the Sustainability Disclosure Requirements (“SDR”) and investment labels for the UK market. The proposals would require UK asset managers making sustainability-related claims about their products to substantiate those claims.

On 25 October 2022 the Financial Conduct Autority (FCA) published its consultation (CP22/20; the CP) on the Sustainability Disclosure Requirements (“SDR”) and investment labels for the UK market in what is becoming an increasingly complex field to navigate. The CP builds on the FCA’s Discussion Paper (DP21/4; the DP). The proposed regime would require UK asset managers making sustainability-related claims about their products to substantiate those claims in a way that is comparable between products and is accessible to clients and consumers.

The market for sustainable investment products – in the UK and worldwide – has grown rapidly and consumers can access an increasingly wide variety of product types. However, there are growing concerns that firms may be making exaggerated, misleading or unsubstantiated sustainability-related claims about their investment products; claims that do not stand up to closer scrutiny (also known as ‘greenwashing’). The FCA is concerned that greenwashing has already eroded trust in sustainable investment products, which, if not addressed properly, may deter some consumers from investing in this market which could ultimately curtail the supply of capital for investments that can drive change.

The proposals are intended to be the main tool for the FCA to force managers to substantiate the sustainability claims they make. The FCA acknowledges that the current market for sustainable investments is difficult for consumers to navigate. For example, there is a lack of standardised disclosure and reporting for products with sustainable investment objectives which makes it difficult for consumers to determine what each product is seeking to achieve and whether they are achieving those objectives.