On 3 November, the UK Financial Conduct Authority (“FCA”) published a discussion paper (DP21/4) (the "Paper”) seeking initial views on a new classification and labelling system for sustainable investment products as well as new sustainability disclosure requirements for asset managers and FCA-regulated asset owners.
The FCA’s Paper highlights two initiatives that the FCA is proposing to implement:
- Sustainability Disclosure Requirements (“SDR”): Real economy companies, including listed issuers, and asset managers and asset owners will be required to report on their sustainability risks, opportunities and impacts at entity and product level; and
- Sustainable investment labels: Certain investment products will be required to display a label reflecting their sustainability characteristics. This will complement the entity and product-level SDR disclosures.
The SDR regime will build on measures already taken or underway to implement disclosure rules aligned with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) across the economy, expanding the scope to cover wider sustainability topics beyond climate change.
The FCA is asking industry participants to provide comments on the Paper by 7 January 2022. The FCA will consider the initial industry views in response to the Paper and will aim to subsequently consult in Q2 2022.
Financial services and markets have an important role in the transition to a more sustainable future. Financial services firms are increasingly incorporating consideration of Environmental, Social and Governance (ESG) factors into their operations, products and services. And, in response to growing consumer demand, firms are providing an increasingly diverse range of products that target various sustainability objectives, themes or characteristics.