As mentioned in the SS&C blog “The Next Phase of SFDR”, the UK’s Financial Conduct Authority (FCA) has recently published final rules on Sustainability Disclosure Requirements (“SDR”) and investment labels.
In an announcement on November 28, 2023, the FCA said: “With an estimated $18.4 trillion of ESG-orientated assets now being managed globally, the FCA is putting in place new Sustainability Disclosure Requirements and an investment labels regime after detailed engagement with a range of stakeholders, including industry, other regulators and consumer groups.”
The announcement comes the week COP 28 kicks off in Dubai and it is hoped will support the UK’s position as a world-leading, competitive hub for asset management and sustainable investment.
'We’re putting in place a simple regime so investors can judge whether funds meet their investment needs—this is a crucial step for consumer protection as sustainable investment grows in popularity,” said Sacha Sadan, Director of Environmental, Social and Governance, FCA.
A summary of the rules is as follows:
- An introduction of a new anti-greenwashing rule, which requires that references to sustainability characteristics of a product or service must be consistent with the sustainability profile as well as being clear, fair and not misleading. This rule will take effect from May 31, 2024 and will apply to all regulated firms.
- For funds with sustainable characteristics, there are now four labels:
- “sustainable focus” funds that invest in sustainable assets.
- “sustainable improver” funds that invest in assets looking to improve their sustainability over time.
- “sustainable impact” funds that invest in solutions.
- “sustainability mixed goals” broadly for mixed asset funds, which “have the potential to improve their sustainability over time”.
These new labels can be used from July 31, 2024. There is no requirement for the use of a label to be externally verified.
- New naming and marketing rules for investment products will apply from December 2, 2024. Terms can be used by unlabeled products in specific limited circumstances (to make short factual statements that are not financial promotions or to make statements in a context not intended to refer to, or describe, the sustainability characteristics of a sustainability product) and subject to other conditions.
- The consumer-facing disclosures are designed to enhance consumers’ understanding of products’ “sustainability characteristics” and must be outlined in a stand-alone document and presented in a prominent place on the product webpage, app or other digital medium, alongside other key investor information. Asset managers must disclose “details of any types of assets held for reasons other than to pursue the sustainability objective [in the product] and why these are held,” as well as “any material negative environmental and/or social impacts that may arise (or have arisen) in pursuing the sustainability objective.”
The FCA has outlined minimum information that must be disclosed where a product without a label uses sustainability-related terms in naming or marketing. The consumer-facing disclosure must be reviewed and updated at least annually.
- Distributors can communicate the labels and consumer-facing disclosures (for both labeled products and products using sustainability-related terms without a label) using the channel they would ordinarily use to communicate to their customers (if they do not use websites, mobile apps or another digital medium will suffice). This will apply from July 31, 2024.
Industry reaction to the revisions was positive. James Alexander, the Chief Executive of the UK Sustainable Investment & Finance Association stated: “This is an important moment in our industry’s efforts to build greater confidence and trust among retail investors in the UK’s evolving sustainable investing market.”
How SS&C Can Help
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SS&C can help firms manage all reporting aspects of their ESG investments. By partnering with leading third-party providers, SS&C offers an extensive suite of services and support in ESG data management, reporting and oversight. Together, we relieve you of the burden of data operations through a fully tailored and bespoke solution.
The result is a tailored solution to meet the unique requirements of your business while providing scalability, access to expertise and transparency to your data. As a global firm, SS&C operates with a follow-the-sun processing model to leverage time-zone differences and offer responsive, consistent customer service capabilities in any time zone.
Written by Justin Knott
Director Private Markets