Addressing the key challenges of the new Sustainability Disclosure Requirements

The FCA has introduced new rules to ensure green financial products deliver on what they promise. Beth Brearley examines what this will mean in practice

According to a 2023 survey by Deloitte on consumer attitudes to sustainability, 12% of 2,000 UK adults in July 2023 had switched some or all of their personal financial investments to more ethical or sustainable investment options.

The UK’s financial services watchdog, the Financial Conduct Authority (FCA), believes investors lack confidence in the sustainability-related claims made about investments. Its policy statement on Sustainability Disclosure Requirements (SDR) and investment labels (PS23/16) cites 2022 research conducted by Boring Money, which finds that 70% of respondents don’t believe all investments are as sustainable as they claim to be.

PS23/16 is the result of two years of consultation, begun in 2021 when the government, in conjunction with the FCA, announced the sector would be subject to SDR, with the goal of assisting consumers to make more informed decisions about their investments and to help boost the credibility of the financial sector.

A new regime

The cornerstones of the FCA’s package of measures are an anti-greenwashing rule and four investment labels for asset managers to use to help consumers navigate the investment product landscape.

The package includes rules surrounding the naming and marketing of sustainable investment products, the provision of consumer-facing information, detailed information for institutional investors, and requirements for distributors to ensure product-level information is made available to consumers.

PS23/16 states that firms must prepare to meet the relevant requirements within the implementation timelines, which begin with the anti-greenwashing rule on 31 May 2024 and run through to the end of 2025 for product-level disclosures and the end of 2026 for smaller firms’ entity-level disclosures.

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