On 25 October 2022, the FCA published its Consultation Paper, "Sustainable Disclosure Requirements and investment labels" (the "CP").
The purpose of the CP is to propose new rules "to help consumers navigate an increasingly complex investment product landscape, protect them from greenwashing, and rebuild trust [in the UK sustainable investment market]." The FCA has introduced a new 'anti-greenwashing' rule and made clear that "it may take enforcement action if a firm has ignored a requirement".
At a high level, this note seeks to set out the architecture of the CP and consider: (1) sustainable investment labels and (2) the general 'anti-greenwashing' rule.
Please see the previous article, Greenwashing and informational asymmetries: The FCA's direction of travel, for background and an assessment of the preceding Discussion Paper.
At a glance
The FCA's proposals cover the following main areas:
- Sustainable investment labels
- Consumer-facing and detailed disclosures
- Naming and marketing rules
- Requirements for distributors
- A general 'anti-greenwashing' rule
Application
The core elements of the regime will, initially, apply to asset managers. The FCA intends to expand the regime as time goes on. The general 'anti-greenwashing' rule will apply to all regulated firms.
Sustainable investment labels and a general 'anti-greenwashing rule'
Sustainable investment labels
The FCA has proposed four investment labels which are provisionally due to come into force on 30 June 2024:
| # |
FCA label |
Description |
Potential equivalent – EU SFDR |
Potential equivalent – US SEC's proposed rules |
| 1 |
No sustainable label |
Products that do not meet the criteria for a sustainable label
|
Article 6 |
Integration |
| 2 |
Sustainable focus |
Products that aim to invest in assets that a reasonable investor would regard as being environmentally and/or socially sustainable
|
Article 8; Article 9 |
ESG-Focused |
| 3 |
Sustainable Improvers
|
Products that aim to invest in assets that, while not objectively environmentally or socially sustainable at present, have the potential to deliver measurable improvement over time |
Article 8; Article 9 |
ESG-Focused |
| 4 |
Sustainable Impact |
Products that aim to achieve a positive, measurable contribution to real world sustainability outcomes |
Article 8; Article 9 |
Impact |
General 'anti-greenwashing' rule
The purpose of this rule is to ensure that the naming and marketing of financial products and services in the UK is clear, fair and not misleading, and consistent with the sustainability profile of the product or service. This is expected to come into force on 30 June 2023.
Reflections
With regard to the labels there is much to be commended about the FCA's approach. It will be interesting to see how the policy incoherence between the UK approach (that is, focusing on helping consumers identify sustainable investment products), and the EU and US approach (that is, categorising products principally to determine disclosure requirements) will impact the development of this space.
With regard to the general 'anti-greenwashing rule', the language of 'clear, fair and not misleading' is not new. Nonetheless, it creates a clear marker as to the FCA's expectations and a demarcated rule upon which the FCA can take action.
Conclusion
In line with the Government's 'Greening Finance: A Roadmap to Sustainable Investing', the proposed rules set out in the CP are one important piece of the UK's post-Brexit landscape. The landscape is evolving and needs to, particularly as we await the UK Green Taxonomy.