The FCA's new rules, known as the Sustainability Disclosure Requirements (SDR), have now come into force, requiring asset managers to provide clear and complete information about the environmental and social impacts of their funds.
Under the SDR, asset managers are prohibited from using vague terms such as 'sustainability' or 'ESG' in fund marketing. Instead, they must select one of four specific fund labels: 'Sustainability Focus', 'Sustainability Improvers', 'Sustainability Impact', or 'Sustainability Mixed Goals'. To qualify for a particular label, asset managers must demonstrate that at least 70% of the fund's assets align with the chosen label.
In addition to the fund labels, asset managers are now required to provide consumer-facing disclosures about a fund's sustainability activities. They must also offer detailed pre-contractual and ongoing disclosures at both the entity and product levels for products that are labelled or referenced as sustainable. The FCA has also introduced naming and marketing rules to restrict the use of certain sustainability terms, ensuring that claims made by asset managers are accurate.
Enhancing transparency and accountability
The FCA's new rules aim to enhance transparency and accountability in the asset management industry, enabling investors to make more informed decisions about their investments. By providing clear and complete information, asset managers can build trust with investors and ensure that their funds align with investors' values and sustainability goals.
The implementation of the SDR has been supported by guidance issued by the FCA, which includes examples of good and poor practices of greenwashing. This guidance helps asset managers understand and implement the new standards effectively.
Assistance for financial firms with compliance
To further assist financial firms in complying with the SDR guidelines, the UK Sustainable Investment and Finance Association (UKSIF) and PwC have released an implementation roadmap. This roadmap provides ten recommendations, including the careful selection of product labels, compliance with the sustainability threshold, and the development of internal taxonomies to prevent greenwashing.
The investor community has welcomed the FCA's new rules, recognising them as a positive step towards protecting investors and promoting sustainable investment. By preventing misleading claims and ensuring transparency, the rules contribute to the overall integrity and credibility of the asset management industry.
As the FCA continues to prioritise sustainability and transparency, it is also considering extending the SDR to portfolio managers. This would involve ensuring accurate product labels and introducing marketing requirements to support environmental claims.
Conclusion
Overall, the FCA's anti-greenwash rules mark a significant milestone in promoting responsible and sustainable investment practices. By holding asset managers accountable for their claims and providing investors with clear information, these rules contribute to the growth of a more sustainable financial sector.