Sustainability Disclosure Requirements for Investment Products
The UK Financial Conduct Authority (FCA) has issued Sustainability Disclosure Requirements (SDR) for investment products, aiming to overcome the problem of sustainable disclosure information asymmetry and help investors allocate sustainable assets.
In previous research, FCA found that 70% of investors have difficulty obtaining sustainable information and believe that some investment products have greenwashing problems. Global ESG-oriented assets will reach US$34 trillion in 2026, and sustainable disclosure requirements will serve this market and help the UK achieve its 2050 net-zero goal.
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The disclosure, naming and marketing rules for investment products will apply to UK asset management companies, and investment product distributors will also need to comply with corresponding guidelines. Investment products are mainly sold to individual investors, but also include institutional investors.
Investment Labels for Sustainable Products
The FCA plans to introduce an investment product labeling system to help investors better understand the sustainable features of products. The new investment product label only applies to products that seek positive sustainability outcomes, and ESG Integration and ESG Tilts do not meet the requirements. The labels will be distinguished according to the sustainability goals of investment products and divided into four aspects, namely Sustainability Focus, Sustainability Improvers, Sustainability Impact and Sustainability Mixed Goals.
For Sustainability Focus, the FCA requires that the sustainability goals of investment products need to be consistent with positive environmental and social sustainability goals and have effective evidence and standards. Investment products need to invest at least 70% of assets in sustainable development and cannot conflict with other sustainable goals. Investment labels are subject to internal and third-party evaluations.
For Sustainability Improvers, FCA requires that the sustainability goals of investment products need to achieve environmental, social, and other sustainable goals over time. Asset management companies need to set expected short-term and medium-term goals and confirm that these assets can meet the standards. Investment products need to use KPIs to measure and disclose this progress.
For Sustainability Impact, FCA requires investment products to have positive impacts on the environment, society, and other aspects, and to measure and verify these impacts. These measures require robust, clear disclosures and regular updates. For Sustainability Mixed Goals, the FCA requires investment products to comply with at least two of the three labels mentioned above.
Naming and Marketing Rules for Investment Products
The FCA believes that the naming and marketing of investment products need to be clear, fair, and not misleading. When investment products comply with the sustainable investment labels, sustainability-related terms can be used. In terms of product naming, the names of investment products need to accurately reflect their sustainable characteristics and disclose relevant information. When an investment product does not have a label, the reason needs to be disclosed.
In terms of marketing, the FCA requires fund sellers to use relevant terminology. For the sales of sub-funds, sellers needs to be consistent with the information disclosure of the main fund and provide investors with channels to obtain information.
Information Disclosure for Investment Products
The FCA requires asset management companies to disclose sustainable information on investment products to investors and publish it in a conspicuous location. Disclosure needs to include the product’s sustainability goals and labels (if there is no label, the reasons need to be explained), investment strategies and sustainability indicators, and how to obtain information disclosure. Asset managers are also required to review and update this information on an annual basis.
For investment products, asset managers are required to provide disclosures before sales and continue to track progress annually. Asset management companies are also required to make company-level disclosures in terms of governance, strategy, risk management and indicators in accordance with ISSB guidelines, and provide information on the resources, governance, and other aspects of investment products.
Sustainability disclosure requirements will come into effect next June, with companies able to use investment labels and disclose information in August. Naming and marketing rules for investment products will come into effect in December. Companies with AUM greater than £50 billion will need to complete information disclosure in December 2025. In December 2026, this standard will be extended to companies with AUM greater than £5 billion.
Reference:
Sustainability Disclosure Requirements (SDR) and Investment Labels
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