On 3 November 2021, the FCA published Discussion Paper 21/4: Sustainability Disclosure Requirements and Investment Labels (DP21/4).

DP21/4 follows the publication of the Government’s Roadmap to Sustainable Investing on 18 October 2021. The Roadmap sets out the Government’s ambitions for new economy-wide sustainability disclosures that enable every financial decision to factor in climate change and the environment.

In DP21/4 the FCA is seeking initial views on sustainability disclosure requirements (SDRs) for asset managers and certain FCA-regulated asset owners, as well as a new classification and labelling system for sustainable investment products. The input the FCA receives to DP21/4 will inform policy proposals to be issued for consultation in Q2 2022.

Among other things the FCA is considering a tiered approach to disclosures and product classification which would meet the information needs of different audiences. The information to be included in this structure, including metrics and methodologies as relevant, would reflect a consistent approach throughout the design, delivery and disclosure of sustainable investment products:

• Product labels. A standardised product classification and labelling system would help consumers understand the sustainability characteristics of different products and navigate the products on offer.
• Consumer-facing disclosures. Consumer-facing product-level disclosures could provide standardised information on the product’s key sustainability attributes. This would allow consumers to better understand the sustainability characteristics of the product, compare similar products or the same product over time, and hold the provider to account for sustainability claims made.
• Detailed disclosures. Detailed disclosures could be made at entity and product level. These could provide more granular information than the consumer-facing disclosures, as well as additional information as relevant. The disclosures could be useful to institutional investors, as well as a broader range of stakeholders.

Under such approach, the FCA states that the entity- and product-level disclosure requirements would build on its proposed TCFD-aligned disclosure requirements, widening the scope beyond climate to other sustainability factors. In setting the potential scope of firms and products, the FCA could as a starting point consider basing this on the proposed scope of its TCFD regime. The FCA is also working with HM Treasury to consider how overseas funds marketing into the UK would be treated. In addition, the FCA is exploring the best approach to introducing requirements for financial advisers, in due course.

The deadline for comments on DP21/4 is 7 January 2022.