The UK’s Financial Conduct Authority (FCA) has revealed new Sustainability Disclosure Requirements (SDR) intending to improve transparency and combat greenwashing in the investment industry. These rules mark a significant step towards standardising environmental, social, and governance (ESG) reporting for financial products.
The FCA has implemented a new anti-greenwashing rule applicable to all FCA-regulated firms making sustainability-related claims about their products and services. This rule, part of a wider package of measures defined in the FCA’s SDR and investment labels final policy statement, was approved in November 2023. The guidance surrounding the anti-greenwashing rule has now been established and came into force on 31 May 2024.
Key changes of the new requirements are:
- Product labels: Companies must use clear labels to describe the sustainability characteristics of their investment products.
- Disclosure obligations: Businesses need to provide detailed information about their sustainability claims and investment strategies.
- Naming restrictions: The use of terms like “ESG,” “green,” or “sustainable” in product names will be regulated to avoid misleading marketing.
- Consumer-facing disclosures: Firms must produce easy-to-understand outlines of their products’ sustainability features for retail investors.
- More detailed disclosures: For institutional investors and other stakeholders, businesses must provide thorough reports on their sustainability practices and performance.
The FCA aims to implement these rules gradually, with the first set of requirements coming into effect this year. This phased approach allows firms time to adjust their practices as well as reporting systems.
These new obligations align with global efforts to standardise ESG reporting, such as the International Sustainability Standards Board (ISSB) guidelines and the EU’s Sustainable Finance Disclosure Regulation (SFDR).
The SDR is expected to enhance investor confidence in sustainable investment products and contribute to the UK’s broader goals of moving into a low-carbon economy.
Looking ahead to a more sustainable financial future
The FCA’s new SDR’s show a big milestone in the journey towards a more sustainable financial system. By promoting transparency and accountability, these regulations help ensure that financial markets contribute positively to the global sustainability agenda.
As the world tackles with the challenges of climate change and social inequality, the role of financial institutions in pushing positive change cannot be overstated. The new requirements are a clear signal that sustainability is no longer a minor issue but a central factor of financial decision-making.
For financial organisations, the path to compliance may be challenging, but the benefits of embracing sustainability are substantial. Those who rise to the challenge will not only contribute to a greener and fairer future but also position themselves for long-term success in a fast changing world.
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Zoe Till is a Partner and Chartered Financial Planner in our expert Independent financial advisers team. Zoe’s areas of expertise include investment advice, retirement planning, Inheritance Tax and lifetime cash flow modelling.
If you would like any advice concerning the subjects discussed in this article, please get in touch with Zoe or another member of the team in Derby, Leicester, or Nottingham on 0800 024 1976 or via our online form.
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