Understanding the FCA's sustainability disclosure requirements and investment labels

07 December, 2022LIBF Webinar

John Somerville, Head of Financial Services, The London Institute of Banking & Finance
Lee Coates OBE, Director, ESG Accord Ltd
Louisa Chender, Senior Associate ESG Policy and Advisory, The Financial Conduct Authority (FCA)

The FCA have issued their consultation paper CP22/20 on their proposals for sustainability disclosure requirements (SDR) and investment leads.

This proposal intends to advance the FCA's strategic objectives to:

  • make markets function well
  • operational objectives to protect consumers and enhance market integrity
  • increasing transparency on the sustainability profile of products and firms
  • risk the harm arising from greenwashing

The aim of the proposed classification and labelling regime is to help consumers navigate the market for sustainable investment products, to distinguish between:
  • products based on their sustainability characteristics, themes, and outcomes
  • different types of sustainable investment product
Sustainable investment products are structured around or pursue sustainability related characteristics, themes, or outcomes, while providing a financial return to investors. Consumer demand for these products is growing rapidly.

The FCA's latest Financial Lives survey shows that 81% of adults surveyed would like the way their money is invested to do some good as well as provide a financial return.

Firms are responding to this demand, according to Investment Association (IA) the UK market for UK domiciled responsible investment funds grew 64% over 2021 to reach £79 billion, far outstripping the 11% growth in UK domiciled funds overall.

However, consumers must be able to trust sustainable investment products and reasonably expect these products to contribute to positive environmental or social outcomes.