Business management

Sustainability disclosure requirements and investment labels – Law Society response

The proposals

The Financial Conduct Authority (FCA) discussion paper (DP21/4) seeks feedback on potential approaches to the design of:

  • sustainable investment labels
  • consumer facing disclosures for investment products
  • client and consumer-facing entity – and product – level disclosures by asset managers and FCA regulated asset owners

Our view

What should the approach be?

The primary purpose of the FCA paper is to help consumers make effective choices in relation to sustainable investments.

The approach to achieving this should be to enable consumers to accurately and easily identify where particular classes of investment fall on a spectrum, from unsustainable to sustainable.

Without unnecessarily duplicating work within the sector, the goal must be to:

  • make such identification straightforward
  • encourage and enable businesses, investors, and products to progress along that sustainability spectrum in the interest of all investors, society and the natural world

Our recommendations

In our response, we comment on the need for:

  • clarity between environmental and wider social characteristics
  • labels that are objective and descriptive rather than subjective

We support entry-level criteria set at entity level, as well as at product level.

We emphasise the importance of encompassing active stewardship approaches to achieving relevant objectives.

We also comment on practical issues, such as:

  • the need to consider the application of the rules to existing investments
  • a variety of boundary and definitional issues (for example, on the proposed distinction between 'responsible' and 'sustainable' investments)

We're asking for a sequenced approach that recognises that disclosures by investee companies provide the foundation for both investor-directed and product-related disclosures.

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.

In a context in which there is rapid change, our submission seeks to inform a credible and practical approach to meeting the FCA’s policy objectives in this area.

We support steps to provide useful signposting for consumers and to ensuring labels and disclosure requirements have a coherent relationship with the underlying legal position.

Next steps

The consultation closed on 7 January 2022.

The FCA says this discussion paper will help it to develop proposed rules in this area.

A further consultation on those rules is expected in quarter two.

Read the consultation on the FCA website

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