FCA consultation on sustainability disclosure requirements and investment labels – Law Society response

We respond to the Financial Conduct Authority's consultation on sustainability disclosure requirements (SDR) and investment labels.

The proposals

The Financial Conduct Authority (FCA) consultation paper (CP22/20) seeks feedback on proposals relating to:

  • sustainable investment labels
  • consumer facing disclosures for investment products
  • extension to the existing fair, clear, and not misleading principle to all sustainability-related communications to prevent ‘greenwashing’

Our view

The primary purpose of the FCA paper is to create transparency and build trust by introducing labels that will help consumers navigate the market for sustainable investment products.

Another aim is to ensure that sustainability-related terms in the naming and marketing of products are proportionate to the sustainability profile.

Overall, we support the proposals from the FCA. We also welcome that the FCA proposals reflect our recommendations from our previous response to the DP21/4 consultation in 2022.

Our recommendations

In our response, we comment on the need for:

  • clarity around the impact on existing funds, overseas funds, funds not marketed in the UK and funds which have “sustainability characteristics” but do not qualify for a label or choose not to comply
  • coherence between national and international disclosure frameworks

We reiterate points made in our previous consultation response (DP21/4) on:

  • differing tiers of disclosures that may be cumbersome or difficult for firms
  • the application of pre-contractual disclosure requirements to funds which are not sustainability products

We support and welcome the proposals on a general anti-greenwashing rule for all FCA-regulated firms, as well as specific requirements addressing the naming and marketing of relevant products to promote the trust and integrity of the UK market on sustainability issues.

What this means for solicitors

As financial sector firms are providing an increasingly diverse range of products that target various sustainability objectives, themes or characteristics, this consultation is expected to be of wide interest to them and the solicitors who advise them.

Further, the proposal for a general anti-greenwashing rule will impact the advice solicitors may need to provide clients and their required understanding on sustainability issues and terms.

Solicitors who advise in this area may also need to understand the differences between the proposed national disclosure framework, and relevant international frameworks.

Next steps

The consultation closed on 25 January 2023.

Subject to the feedback received, the FCA intends to publish its final rules and guidance in a policy statement by the end of the first half of 2023.

Read the consultation on the FCA website

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