The UK Financial Conduct Authority has unveiled a raft of new measures to tackle greenwashing in its consultation on Sustainability Disclosure Requirements (SDR), including three categories of investment labels to be used for sustainable investment products.
The categories are: Sustainable Focus, Sustainable Improvers and Sustainable Impact, reports Investment Week.
Sustainable focus will be used for products investing in assets that are environmentally or socially sustainable; sustainable improvers is for products investing in assets to improve the environmental or social sustainability over time and sustainable impact will be used for products investing in solutions to environmental or social problems targeting measurable impact.
Under the new requirements, there will be restrictions on how some terms - such as 'ESG', ‘green' or ‘sustainable' - can be used in product names and marketing. Firms will have until 30 June 2024 to update their product material and make initial disclosure requirements.
The new SDR regime will also require firms to make consumer-facing disclosures to explain the key sustainability-related features of an investment product, as well as more detailed disclosures for professional investors.
The latter will include: pre‑contractual disclosures, such as in the fund prospectus, covering the sustainability-related features of investment products; ongoing sustainability‑related performance information, including key sustainability-related performance indicators and metrics, in a sustainability product report; and a sustainability entity report, covering how firms are managing sustainability-related risks and opportunities.
The FCA has announced as part of its consultation on SDR that it will be beefing up its enforcement strategy and checking how firms have responded to the expectations set out in the 'dear chair' letter addressed to authorised fund managers in July 2021.
Sacha Sadan, the FCA's director of environment social and governance, said: "Greenwashing misleads consumers and erodes trust in all ESG products. Consumers must be confident when products claim to be sustainable that they actually are. Our proposed rules will help consumers and firms build trust in this sector.
"This supports investment in solutions to some of the world's biggest ESG challenges. This places the UK at the forefront of sustainable investment internationally. We are raising the bar by setting robust regulatory standards to protect consumers in line with our wider FCA strategy."
The consultation is open until 25 January 2023 with the final rules expected to be published by the end of the first half of 2023. Further consultations to extend the scope and content of the regime are planned for the future, the FCA said, including applying the regulation to overseas products.
