On 25 October 2022, the FCA published Consultation Paper CP22/20 on sustainability disclosure requirements (SDR) and investment labels.
In the Consultation Paper, the FCA expresses that there are growing concerns that firms may be making exaggerated, misleading or unsubstantiated sustainability-related claims about their products; claims that don’t stand to closer scrutiny (so-called ‘greenwashing’). The FCA notes that such greenwashing may already be eroding trust in the market for sustainable investment products and that, as a result, it has a role to play in building ‘guardrails’ against greenwashing to protect consumers from potential harms.
In light of this, in this Consultation Paper the FCA proposes new rules to help consumers navigate what the FCA describes as an increasingly complex investment product landscape, protect consumers from greenwashing and rebuild trust. The proposals build from early views set out in the FCA’s Discussion Paper on SDR and investment labels (DP22/14) published last November.
The Consultation Paper proposes to introduce:
- Sustainable investment product labels that will give consumers the confidence to choose the right products for them. There will be three categories – including one for products improving their sustainability over time – underpinned by objective criteria.
- Restrictions on how certain sustainability-related terms – such as ‘ESG’, ‘green’ or ‘sustainable’ – can be used in product names and marketing for products which don’t qualify for the sustainable investment labels. The FCA is also proposing a more general anti-greenwashing rule covering all regulated firms. In the FCA’s view, this will help avoid misleading marketing of products.
- Consumer-facing disclosures to help consumers understand the key sustainability-related features of an investment product – this includes disclosing investments that a consumer may not expect to be held in the product.
- More detailed disclosures, suitable for institutional investors or retail investors that want to know more.
- Requirements for distributors of products, such as investment platforms, to ensure that the labels and consumer-facing disclosures are accessible and clear to consumers.
The FCA has also advised that it is stepping up its supervisory engagement on sustainable finance and enhancing its enforcement strategy, including checking how firms have responded to the Dear Chair letter issued to authorised fund managers in July 2021.
The deadline for responses to the Consultation paper is 25 January 2023. Subject to the feedback received, the FCA intends to publish the final rules and guidance in a Policy Statement by the end of the first half of 2023.