Legal development

UK Sustainability Labels Delayed

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    On the eve of the UK Government's 'Green Day', the FCA announced (29 March 2023) a delay to the publication of its policy statement on sustainability disclosure labels by three months (see our previous briefing here on the SDRs). The planned date for publication was H1 2023, i.e. 30 June 2023, and it is now delayed to Q3 2023.

    The practical effect of the delay means: 

    • The effective date for the rules has also been pushed back by 3 months (so 30 September 2024);
    • While it is not expressly called out in the announcement, the anti-greenwashing rule which was due to enter into force on the date of the publication of the policy statement will also now be delayed. This rule will apply to all financial services firms so this may be largely welcomed by those firms who have been busy building anti-greenwashing frameworks in response to this new role.

    The FCA states that the delay is required because of the number of responses it has received to the consultation (240 in number). The FCA notes that it wants to take account of practical challenges faced by firms in implementing the SDRs. It calls out a couple of areas of specific concern that it is looking at:

    • Refinement of specific criteria for the proposed labels (and this would be welcomed given the issues of uncertainty that we have seen under the EU's sustainable finance disclosure regulation (SFDR) regime);
    • How different products, asset clauses and strategies can qualify for a UK sustainability label and in particular for multi asset and blended strategies.

    The FCA also highlights that its policy statement will clarify that for the SDR labels:

    • Primary and secondary channels for achieving sustainability outcomes is not prescribed, i.e. firms will be able to use their own sustainability outcomes; and
    • Independent verification of product categorisation will not be needed to qualify for a label. (Note this is a similar approach to the EU's SFDR which is a self-classifying regime. That is not to say that sponsors haven’t sought verification or at the very least comfort from their advises as to their approach to classification.)

    Commentary

    It is no surprise that the FCA has received a significant number of responses to the consultation on SDRs. It has openly acknowledged that it has the benefit of going second to the EU (and by inference learning from the EU's mistakes, of which there were many under SFDR). The buy side is still dealing with the repercussions and continuing uncertainty under the SFDR. The opportunity for the UK is to create a much more practical and effective regime. However, the UK is proposing a so called voluntary regime. This might be the right approach (particularly with respect to the issue of protecting consumers and maintaining public trust) but it means that firms who are currently using a SFDR classification might find themselves with another strategic decision that needs to be made to align the two.

    All eyes will be on the FCA towards 30 September 2023 when the policy statement will now be due. Until then the regulator faces a Sophie's Choice how to balance its objectives and industry sentiment.

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