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A new proposal to extend the Financial Conduct Authority’s (FCA) Sustainability Disclosure Requirements (SDR) to portfolio managers has been made public. The FCA is the UK’s conduct regulator for financial services firms and financial markets. The rules in the SDR are intended to help investors evaluate the sustainability attributes of investment products and prevent the risk of greenwashing.
The proposal comes after the FCA published its SDR requirements for asset managers in November 2023. These requirements included guidelines for naming and marketing funds based on their sustainability attributes, using a new sustainable investment product labeling regime, and prohibiting “greenwashing” in relation to sustainability-related product claims.
The FCA observes that firms that provide portfolio management services to professional clients will not be subject to the naming and marketing requirements. Although the original SDR was developed primarily for retail investors, the new proposal would extend the requirements to firms that manage a group of investments for consumers, with a focus on wealth management services for individuals and model portfolios for retail investors.
The first SDR included rules against “greenwashing,” which guarantees that statements made about the social or environmental aspects of financial products or services “are fair, clear, and not misleading, and consistent with the sustainability profile of the product or service.” It also included rules regarding the naming and marketing of investment products, which stipulated that terms related to sustainability could only be used in product names and marketing if a label was present, or if the product’s name accurately reflected its features but did not use terms like “sustainable,” “sustainability,” or “impact.”
In order to assist consumers in distinguishing between the investment approaches and sustainability objectives of investment products, the labeling regime introduced four labels: Sustainability Focus, Sustainability Improvers, Sustainability Impact, and Sustainability Mixed Goals. Additionally, the labels included criteria for their respective uses.
The revised plan would allow portfolio managers to start using the labels at the same time as asset managers, December 2, 2024, and subject them to the new name and marketing criteria. Under the SDR, companies managing more than £50 billion in assets would have to start releasing product-level disclosures by December 2025, while companies managing more than £5 billion in assets under management would have to start doing so by December 2026.
The FCA provided fresh guidelines for enterprises to assist them comply with the new standards in addition to the new proposal. The FCA stated in its newly finalized guidance that it had received “broadly positive and supportive” feedback from stakeholders. The new document addresses the feedback by confirming that the anti-greenwashing rule will take effect at the end of May 2024, adding examples of good practice, and clarifying the scope of the rule.