ESG InvestingMar 29 2023

FCA considering changes to SDR and investment labels

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FCA considering changes to SDR and investment labels

The Financial Conduct Authority is considering adjustments to sustainability disclosure requirements, weeks after the head of an industry body urged the regulator to change a number of its original proposals.

In a statement today (March 29), the City regulator said it is “carefully considering” the 240 written responses it received to the SDR and investment label consultation.

Particular areas of focus for the FCA are the marketing restrictions in the draft regulation, refining some of the specific criteria for the labels and clarifying how different products, asset classes and strategies can qualify for a label.

The FCA is intending to publish a policy statement in the third quarter of this year.

Last month (February 23), the chief executive of the Investment Association told a Treasury sub-committee that the original draft for the labels excluded too much of the industry.

Chris Cummings said the FCA needed to reconsider some of the proposals, as if they were to go ahead in their current form, between 60 and 70 per cent of all retail investment products would be excluded.

The FCA added that it is balancing coherence with other countries’ equivalent rules, while ensuring the UK’s standards remain “robust”.

Gemma Woodward, head of responsible investment at Quilter Cheviot welcomed the news, and said it is “vital” sustainable and responsible and investing is a success, and part of this is ensuring advisers and investors can feel confident in what they are investing in.

“Alongside the likes of the consumer duty, this is a landmark piece of regulation from the FCA and it is clearly listening to those concerned. 

“The changes are going to be vast once they are introduced so firms will need time to implement these, along with other policies from international regulators and bodies.”

The regulation includes three labels for sustainable products: ‘sustainable focus’, ‘sustainable improvers’, and ‘sustainable impact’.

The first requires at least 70 per cent of the product to be invested in assets aiming to achieve a high standard of ESG, with the second looking at assets that are not sustainable now but are aiming to be in the future.

The ‘sustainable impact’ category will be for products with an explicit objective to achieve a positive and measurable contribution to sustainable outcomes, and products that do not align with any of these will be label-less.

Investment products that qualify for the regulation will also be required to meet certain principles in order to use a sustainable label, including their sustainability objective, investment policy and strategy, key performance indicators, resources and governance and investor stewardship.