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Sustainability Disclosure Requirements detailed UK proposals have arrived

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    Following on from DP21/4 which was published in November 2021, on 25 October 2022 the FCA published its consultation (CP22/20) on the Sustainability Disclosure Requirements and investment labels for the UK market. These significant proposals aim to provide greater clarity and harmonisation on the rules for products which are marketed as sustainable in the UK. There will be sustainable investment labels and extensive disclosure requirements, as well as naming and marketing rules, requirements for distributors and a general anti-greenwashing rule.

    These are well thought through, significant rules around what will be permitted to use sustainable investment labels in the UK and the relevant disclosure obligations that will accompany such labels. There is no obligation or requirement to use the labels but, if you don't, there will be naming and marketing restrictions that will apply which will limit how you can describe your product with respect to sustainability factors.

    Each of these requirements is looked at in more detail below as well as commentary around what this means in practice. Importantly these proposals do not currently apply to overseas funds marketed into the UK but the FCA goes to great lengths to highlight that it will consult shortly on extending the regime to this population of products. Non-UK fund managers should expect the UK to take the same approach to extra-territoriality of these requirements as is currently the case under the EU SFDR.

    Clearly the FCA has sought to make this regime as simple as possible but even the length of this summary briefing is indicative as to what complexities and work will be required by certain firms in order to comply with these requirements. There are also areas where the EU and UK regime will rub up against each other and there may end up being duplication and/or repetition. Firms – even those who are not yet in scope - should get their arms around the proposals now so that they can influence the final rules which are due to be published in H1 2023.


    Why do we need sustainability disclosure requirements?

    The FCA is concerned that firms are making exaggerated, misleading or unsubstantiated sustainability-related claims about their products which will in turn lead to an erosion of the public's trust in sustainable products. It previously proposed a labelling regime with (five) specific buckets for different types of sustainable fund.


    The proposed UK SDR labels are not a hierarchy – no label is meant to be 'better' (or 'greener') than others; each is designed to deliver a different profile of assets and consumer preferences, in direct comparison with EU SFDR regime.

    Importantly, an EU SFDR Article 8 fund is unlikely to meet the requirements for a sustainable label under the UK regime with what the FCA term "an upgrade" required to achieve a UK SDR label or foregoing the UK sustainability label and complying with the UK restrictions on naming and marketing. This will be a difficult balancing act for firms.

    Key actions

    Firms should be considering the following: 

    1. Am I / my products in scope?
    2. How do I determine what label applies to my product?
    3. What do I have to do if my product has a sustainable investment label? What disclosures do I need to make?
    4. How do I get relevant information to make those disclosures?
    5. What strategic or governance changes do I need to make if I want to qualify for a particular label?


    Please refer to the downloadable PDF.


    The FCA wants to ensure that consumers can distinguish between products on the basis of their sustainability characteristics, themes and outcomes as well as distinguishing between different types of sustainable investment product. Further to feedback on the DP21/4 proposals, the FCA wants to introduce a classification and labelling regime to help consumers (i.e. retail investors) to navigate the market. Where firms offer in scope investment products they will be able to use the sustainable investment labels if they choose to and if they meet the proposed qualifying criteria.  Where they choose to do so, there will be accompanying disclosure requirements. Where a firm chooses not to use a label or does not qualify to do so, they will need to ensure that the name of the product and the product features are in line with naming and marketing rules.

    These labels largely track those categories proposed in the DP21/4 under sustainable investments. The FCA has removed the concepts of 'Responsible' and 'Not Promoted as Sustainable' from its proposals. Therefore a fund without a sustainability objective but which uses strategies such as ESG integration would not qualify under any of the proposed investment labels. Nor would negative screening or exclusionary strategies qualify.

    The FCA considers that one of the key attributes of a sustainable investment product is an explicit environmental and/or social objective ("sustainability objective") that sits alongside the product's financial objective and is expressed and measured in specific and measurable terms.

    Three labels

    The FCA is therefore proposing the following three labels:

    1. Sustainable Focus – products which invest predominantly in assets which can be deemed to be sustainable;
    2. Sustainable Improvers – products which aim to improve the sustainability of their portfolio over time; and
    3. Sustainable Impact – products which seek to achieve impact through the provision of finance, typically to underserved markets.

    These are mutually exclusive and will have a simpler description on consumer facing documents. The below gives some background and features on each of these. The FCA has importantly provided a framework for determining how products fall within each of these labels which is described in further detail below.

    Please refer to the downloadable PDF.

    Classification criteria

    The FCA has determined that for a product to qualify under one of these three sustainable investments label it must meet the following:

    1. five overarching principles, referred to as "general criteria" covering:
    2. (a) sustainability objective

      (b) investment policy and strategy;

      (c) KPIs;

      (d) resources and governance;

      (e) investor stewardship;

    3. a number of key cross cutting considerations (including what firms must do and what firms must disclose);
    4. certain category specific key considerations relevant to a particular label.

    Please refer to the downloadable PDF.

    Miscellaneous issues arising under categorisation

    Portfolio management: With respect to portfolio management arrangements, 90% of the total value of the products in which it invests must meet the qualifying the qualifying criteria for the same label in order for it to use the label.

    Once met, the firm must then make the disclosures for each of the underlying products available to the consumer.
    Securities lending: "We do not consider securities lending as being incompatible with ESG as securities lending arrangements can be tailored to meet the ESG objectives of the lending and borrowing parties."

    Short selling: "We do not propose specific parameters for the use of short selling in the context of sustainable investment labels. However we propose guidance to clarify that, where relevant to its investment policy and strategy a firm must explain how short selling aligns with or contributes to the sustainable investment product's stated sustainability objective".

    Derivatives: "we are proposing implementing guidance to increase transparency on the use of derivatives in sustainable investment products."

    Using labels

    Firms that meet the above criteria for investment products will be able to use the relevant graphics showing the relevant sustainability label and provide details where disclosure materials about the product can be found. Good record keeping is required around the use of the label. Any change to the use of a label will constitute at least a significant change.

    coloured labelsDISCLOSURES

    Once a product's label has been determined, certain prescribed disclosures are required.  The FCA makes it clear that the proposals in this CP are the start and more specificity will be added over time. The FCA has done considerable testing and included an occasional paper to support the proposals in CP22/20. The regulator largely followed the structure of the proposals set out in DP21/4 albeit with some changes. It also highlighted that the Treasury's expected review of retail investor disclosures is likely to have an impact on the form of sustainability disclosures in time.  Following on from the FCA's work, the table below sets out a summary of the key disclosures and the main locations in which those disclosures should be made.


    O = all in scope firms will need to make the disclosures, subject to certain exemptions

    X = disclosure only applies in respect of products that have a sustainable investment label

    Please refer to the downloadable PDF.

    a. Consumer facing disclosures

    These are a subset of more detailed product level information providing the most salient sustainability related information to consumers in an accessible way. These need to be made available in a prominent place on the relevant digital medium for the firm (e.g. website or app) and no more than 'one mouse click away' from where the label is presented. It should be a new standalone document alongside other key investor information (e.g. PRIIPs KID). Importantly these disclosures do not need to be set out in the KID.

    All in scope firms need to produce a consumer facing document for in scope products. This includes products which are not engaged in any sustainability related strategies and whose disclosures will be more limited, marked with no sustainable label and n/a, as appropriate.

    The FCA wants to balance prescription and flexibility so has proposed some specific rules around the format and content, but not a template. Instead it hopes that there is a market led template developed. The disclosure should be made available when the label obligation enters into force and should be reviewed and updated annually thereafter. The disclosure should also be reviewed following any change to the product.

    The content of the consumer facing disclosure must include:

    1.Basic information Firm's name
    Product name
    ISIN/unique identifier
    2.Product label If relevant
    3.Sustainability goalThe product's sustainability objective and impact on the financial return
    4.Sustainability approachKey elements of the product's investment strategy to pursue the objective which should include key sustainability characteristics of assets which the product will and will not invest in and the firm's approach to stewardship
    5.Unexpected investments A summary of the types of holdings that the firm would expect consumers of the product would find 'surprising' (e.g. inconsistent with sustainability objective), consumer testing may be key to understanding what consumers might find surprising
    6.Sustainability metricsRelevant metrics / KPIs linked to achieving the sustainability objective and any other metric that would help consumers to further understand the approach that the firm has taken.
     7.Signposting to other disclosuresCross refer/hyperlink to further information in the detailed product level disclosures (pre-contractual and ongoing performance), entity-level disclosures and relevant documents that set out non sustainability related information for the product


    b. detailed product level disclosures

    These are additional information in relation to the product e.g. on data, methodologies, limitations. Such disclosures should be made in pre-contractual disclosures (e.g. prospectus) and in the sustainability product report.

    i. Pre-contractual disclosures – sustainability product report – Part A

    All products using sustainable investment label must make pre-contractual disclosures.

    Where a product does not qualify for a label but does adopt sustainability related features that are integral to their investment policy and strategy, these should be disclosed in the pre-contractual documents. Firms providing their own portfolio management services will not be required to produce their own pre-contractual disclosures.

    Where a product does not use a sustainable investment label, nor has sustainability related features, no pre-contractual disclosures are required.

    The following sets out the content required for this disclosure, some of which should be contained in the prospectus as well as on a website.

    1.Principle 1 – sustainability objective
    1. A firm must disclose the product’s sustainability objective in specific and measurable terms as part of its investment objectives, including those with respect to achieving a financial return on that product.
    2. A firm must disclose details of the extent to which the sustainability objective has, or may have, impacted the financial return of the product.
    3. A firm must disclose details of the plausible, purposeful, and credible link between the product’s sustainability objective’s and environmental and/or social outcomes.
    2Principle 2 – investment policy and strategy
    1. A firm must disclose details of the product’s investment policy and strategy and the way these align with the product’s sustainability objective.
    2. A firm must describe the product’s investible universe and the asset-level selection criteria it applies to meet a target environmental and/or social sustainability profile of assets, in specific and measurable terms, including:
      • how the firm assesses the assets in which the product invests against the criteria
      • how the selection criteria relates to the target environmental and/or social profile of the product’s assets
      • how the target environmental and/or social profile of the product’s assets align with the product’s sustainability objective; and
      • the conditions under which an asset in which the product has invested in may cease to meet its specified criteria for asset selection
    3. A firm must provide details of its policies and procedures to determine, measure, monitor, evaluate and report to investors (ie clients and consumers) on the environmental and/or social sustainability profile of the product’s assets over time.
    4. A firm must provide details of its target asset composition in respect of the product, including:
      • the different asset classes in which it will invest, its use of derivatives, its long-term and short-term exposures
      • the processes by which it complies with the requirement to have appropriately designed policies and procedures in place to determine, measure, monitor, evaluate, and report to investors (ie clients and consumers) on an ongoing basis; and a description of the environmental and social sustainability characteristics of assets (or asset types) in which the product will and will not invest
    5. A firm must disclose any investments made by the product that a reasonable investor (ie client and consumer) might consider to be in conflict with the sustainability objective, investment policy and strategy of the product.
    6. Where the product is an index-tracking product, a firm must describe how the index provider’s methodology for index-construction aligns with the product’s sustainability objective and its target environmental and/or social sustainability profile.

    This disclosure should be made in a specific section of the fund prospectus.

    3.Principle 5 – stewardship

    A firm must set out details, in a clear and accessible way, of its (firm-level and/ or product-level) stewardship strategy and resources, including:

    a. details as to any differences or conflicts between its firm-level and product-level stewardship strategy, in relation to the product, including any specific targets or constraints applied at the product-level (eg product specific engagement or voting strategy)

    b. details as to its commitment to the UK Stewardship Code 2020, published by the FRC

    c. the specific methods it uses to influence sustainability outcomes across the product’s assets

    d. how it applies its strategy and resources in a manner consistent with the product’s sustainability objective

     4.Category specific disclosures: Key elements of the product's investment strategy to pursue the objective which should include key sustainability characteristics of assets which the product will and will not invest in and the firm's approach to stewardship
    a. Sustainable focus --
    b. Sustainable improversThe firm must describe how it assesses potentially investible assets to determine the extent to which improvements in sustainability can be achieved over time, including through investor stewardship.
    c. Sustainable impact

    The firm must include the following information:

    • its theory of change, with clear examples that emphasise how its investment process aims to contribute to addressing environmental and/or social problems, in line with its sustainability objective
    • a robust method to measure and demonstrate that its investment activities have had a positive environmental and/or social sustainability impact
    • its escalation plan should the real-world outcome no longer plausibly be achievable, including potential divestment of assets
    • in relation to specifying its asset-level selection criteria, how it assesses potentially investible assets to determine:
    • whether those assets align with the product’s theory of change, while also avoiding unintended negative consequences; and
    • the extent to which a positive, measurable, environmental and/or social outcome can be achieved


    Importantly the do no significant harm concept in the EU's SFDR has not been carried across as it was deemed too restrictive.

    Again such disclosures should be made available when the rules come into force

    ii. Periodic disclosures – sustainability product report – Part B

    initially, a sustainability product report will only be required for products which qualify for a sustainable investment label and will set out ongoing performance and progress towards the stated product objective. These reports should be published on a prominent place on the website for the business of the firm and can include cross-references to a third party's sustainability product report.

    1.Principle 2 – investment policy and strategyA firm must provide details as to how the product invests in accordance with its investment policy and strategy on an ongoing basis.
    2.Principle 3 – KPIs A firm must disclose details of the product's performance against the specified KPIs.
    3.Principle 5 – Stewardship

    Where stewardship plays a significant role in the product’s investment policy and strategy a firm must disclose:

    • its specified (credible, rigorous and evidence-based) KPIs related to stewardship, including engagement and voting activity relevant to the delivery of the product (in line with its sustainability objective)
    • outcomes of its stewardship activities, with reference to the product’s sustainability objective; these disclosures can be made in existing stewardship-related reporting (eg reporting as a signatory of the UK Stewardship Code 2020) and cross-referenced in its sustainability product report
    4. Category specific features 
    a, Sustainable focusThe firm must disclose the KPIs specified in accordance with the requirements for this category. In relation to its stewardship strategy, the firm must disclose how that strategy has been applied to achieve continuous improvement in environmental and/or social sustainability of the product’s assets; and the outcomes achieved.
    b.Sustainable improversThe firm must disclose details of the KPIs specified in accordance with the requirements for this category.
     c.Sustainable impact

    The firm must disclose the KPIs specified in accordance with the requirements for this category, also including:

    • its analysis as to how its actions have contributed to the impact achieved; or
    • an explanation as to why its actions have not done so the firm must also disclose details as to how its rights and influence (including through direct control as relevant) have been applied to pursue the pre-defined, positive, measurable realworld outcome specified in the product’s sustainability objective, in line with its theory of change for the product.
    • in relation to specifying its asset-level selection criteria, how it assesses potentially investible assets to determine:
    •  whether those assets align with the product’s theory of change, while also avoiding unintended negative consequences; and
    • the extent to which a positive, measurable, environmental and/or social outcome can be achieved
    5. Additional requirements

    Any other metrics that a client or consumer might find useful in understanding the firm’s approach to meeting the sustainability objective, or deciding whether to invest in a particular sustainability product eg common metrics within a certain sector.

    The firm should also explain the methodology used, and present KPIs relating to the sustainability objective at least as prominently as any other metrics.

    • contextual information alongside KPIs/metrics disclosed including how KPIs/ metrics should be interpreted, their limitations, and use of proxies/assumptions, to enable clients and consumers to interpret the data effectively and in a way that is not misleading
    • historical annual calculations on KPIs/metrics after the first year of reporting, to enable clients and consumers to compare sustainability performance year-on-year in a way that is easy to understand and not misleading
    • any disclosures where the firm’s approach to a sustainability product materially deviates from the firm’s overarching approach disclosed in the firm’s sustainability entity report – in doing so the firm may cross-refer to disclosures in each report
    • date of the report


    The FCA acknowledges that there are challenges with data availability. Firms must use the most up to date information available within their reporting period. Importantly firms should not disclose metrics where data gaps or methodological challenges are so severe that they cannot be addressed using proxy data. It is likely that there will be cross over between these disclosures and UK Green Taxonomy disclosures when they come into force.

    c. detailed entity level disclosures

    These disclosures will set out information on how the firm offering these products is managing sustainability risks and opportunities, building from the FCA's TCFD aligned climate relate disclosure requirements to cover sustainability matters more broadly. All in scope asset managers will be caught although there will be a phased implementation depending on AUM.

    Like TCFD reports, these disclosures should be on a prominent page of the firm's main website. The FCA intends to build on the TCFD requirements extending disclosure requirements under the four pillars of governance, strategy, risk management and metrics/targets. It is acknowledged that this provides discretion and divergence and firms may need additional specificity on what to disclose in relation.

    1. Core requirements

    Core entity-level disclosure requirements based on the TCFD’s four recommendations:

    • the governance around sustainability-related risks and opportunities
    • the actual and potential impacts of sustainability-related risks and opportunities on their businesses, strategy and financial planning, where such information is material
    • how the firm identifies, assesses and manages sustainability-related risks
    • the metrics and targets used to assess and manage relevant sustainability-related risks, where such information is material

    Firms should consider disclosing the sustainability-related topics that they have prioritised in their governance, strategy and risk management, and the rationale for doing so and the FCA has provided guidance to that effect. .

    Disclosures should be made under the four pillars in respect of both the firm’s operations and how it manages assets on behalf of clients and consumers. For the latter, firms may refer to the TCFD’s supplemental guidance for asset managers to help determine the types of disclosures to make. The guidance covers disclosures under the strategy, risk management and metrics and targets pillars.


    For firms with products with sustainable labels:

    Principle 4 -governance and resources

    1. A firm must describe the arrangements and resources it has in place to oversee the sustainability research, data and analytical tools that it uses in supporting the product’s sustainability objective.
    2. A firm must describe the resources, governance and organisational arrangements that appropriately support and incentivise the high-quality delivery of its documented investment policy and strategy in line with the sustainable investment product’s sustainability objective.



    The FCA is introducing a new general anti-greenwashing rule reiterating requirements for all regulated firms that sustainability related claims must be clear, fair and not misleading. The new rule requires all firms to ensure that the naming and marketing of all financial products and services is clear, fair and not misleading, consistent with the sustainability profile of the product or service i.e. proportionate and not exaggerated.

    The rule will sit in the ESG Sourcebook. This rule will apply to all regulated financial services firms, including those firms who are responsible for approving financial promotions of unauthorised firms.

    The new rule will allow the FCA to challenge firms that it considers to be potentially greenwashing their products or services and take enforcement action against them as appropriate (arguably such powers already existed under the fair, clear and not misleading rule, however this expressly calls them out in relation to sustainability claims).

    The new rule will come into effect immediately on publishing the FCA's Policy Statement (due in H1 2023). This means that firms will need to be ready when this comes in. In light of the HSBC ASA ruling, firms would do well to take action now, upskill their marketing teams and ensure that greenwashing risks are well understood by the board.


    The FCA is proposing to prohibit firms providing in scope products to retail investors that do not qualify for and use one of the sustainable labels from using sustainability related terms including, ESG, sustainability, responsible, green, SDG, Paris aligned, etc.

    Sustainable Focus and Sustainable Improver products are also banned from using the term impact in their product name and marketing.

    This restriction is limited to in scope products although future expansion to products offered to institutional investors was not ruled out.


    The FCA is proposing that where in-scope products are offered to retail investors and have a sustainable investment label, distributors must display the label prominently on a relevant digital medium (eg product webpage, page on a mobile application or other medium) and provide access to the accompanying consumer-facing disclosures. The distributor must not use a sustainable investment label for a product other than the label that has been assigned by the firm. In addition, distributors must keep the relevant digital medium and marketing communications updated with any changes a firm makes to the label and disclosures.

    For products that do not use a label, the distributor will nevertheless be required to provide retail investors with access to the consumer-facing disclosure.


    A policy statement will be published in H1 2023. From this date the new anti-greenwashing rule will start to apply. For all other proposals, the date of application will be set out in the PS but will be 30 June 2024 or after. Nevertheless there is also a consultation to follow on how the proposals will apply to overseas funds marketing into the UK.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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