The Financial Conduct Authority (FCA) has confirmed its new sustainability disclosure requirements (SDRs) for asset managers and FCA-regulated asset owners.

As part of the new requirements, the FCA will introduce a new anti-greenwashing rule for all authorised firms to make sure sustainability-related claims are fair, clear and not misleading.

The FCA will also introduce product labels to help investors understand what their money is being used for, based on clear sustainability goals and criteria, as well as naming and marketing requirements so products cannot be described as having a positive impact on sustainability when they don’t.

As part of this, the FCA revealed that it has now included a fourth label, Sustainability Mixed Goals, for funds that invest across different sustainability objectives and strategies aligned with other categories.

The anti-greenwashing rules will be the first to come into force in May 2024, followed by the labelling regime on 31 July 2024, and the naming and marketing rules, which will apply from 2 December 2024.

The new requirements were introduced following detailed engagement with a range of stakeholders, including industry, other regulators and consumer groups.

The package of measures, including the consumer-focussed labelling regime, aim to protect consumers by helping them to make more informed decisions when investing and enhance the credibility of the sustainable investment market.

This comes after FCA research found that investors weren’t confident that sustainability-related claims made about investments were genuine, with inconsistent terms, such as green or sustainable, further exacerbating the issue.

FCA director of environmental, social and governance, Sacha Sadan, stated: “We’re putting in place a simple, easy to understand 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.

“By improving trust in the sustainable investment market, the UK will be able to maintain its position at the forefront of sustainable finance, and capture the benefits of being a leading international centre of investment.”

UK Sustainable Investment and Finance Association chief executive, James Alexander, also highlighted the news as 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”.

“We believe that the new investment labels can address concerns often raised by savers over their funds’ sustainability claims and profile,” he continued.

“We are pleased to see a number of important revisions to the regime to address potential implementation challenges and promote greater transparency for savers.

“Going forward, we would like to see the FCA consider convening the Disclosures and Labels Advisory Group (DLAG), or a similar industry group, on an ongoing basis to help the regime’s implementation in the market and monitor greenwashing risks.

“Crucially, the regulator should continue to closely engage with regulatory authorities in overseas markets to positively shape jurisdictions’ approaches to disclosures and fund labels and promote international harmonisation.”

New of the requirements has been welcomed by organisations in the pensions industry, with PensionBee chief engagement officer, Clare Reilly, suggesting that the new requirements are “key steps towards giving people more confidence that financial products making sustainability claims are actually backing up those claims with action”.

She stated: “While it might take a little while for people to get used to the labels, over time, they should result in consumers being able to differentiate financial products that are sustainable in the same way it’s possible to find fairtrade or organic food in the supermarket.

“As COP28 kicks off this week, there is renewed focus on the urgency of climate action and in particular, through the Make My Money Matter campaign, the undeniable role of pension providers, as asset owners, to act towards resolving it.

"This new regulatory regime will help drive this forward through enabling pension savers to make confident choices.”

Adding to this, XPS Pensions Group head of ESG research, Alex Quant, said that the final policy will provide welcome confirmation of the labels which UK asset managers will need to use, warning however, that there could be further ambiguity.

“The new fourth label is useful in that it allows for funds to incorporate a mix of assets at different stages of their sustainability journey, and therefore cater for different investors’ preferences - particularly useful for multi-asset funds,” he explained.

“However, it does introduce more scope for confusion and ambiguity. Investment managers will still have discretion around how they define a sustainable activity or how they achieve impact, and therefore thorough due diligence is still required to really understand what’s going on under the bonnet for a given fund. “

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