UK Financial Conduct Authority Issues Discussion Paper on Sustainability Disclosure Requirements and Investment Labels | Shearman & Sterling LLP

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The UK’s Financial Conduct Authority has published a discussion paper on its proposed sustainability disclosure requirements and sustainable investment labels. The FCA is seeking initial opinions on these proposals with the intention of consulting on more comprehensive policy proposals in the second quarter of 2022. Responses to the discussion paper can be submitted until January 7, 2022. These proposals are linked to the government’s ambitions. UK on climate change and green finance. , detailed in its October orientation document, Green financing: a roadmap for sustainable investment, further details of which are provided in our customer note.

FCA wants to encourage the growing market for financial products that target sustainability goals, but is keen to ensure proper regulation is in place. The discussion paper therefore proposes:

  • Sustainability disclosure requirements for certain asset owners and FCA-regulated asset managers. The SDR regime would include:
    • Product labels: FCA believes that a standardized product classification and labeling system would help consumers and investors understand the sustainable nature of the different types of products available;
    • Product-level information for consumers, which would define key information on the sustainability of investment products; and
    • Detailed product and entity information for institutional investors covering sustainability risks, opportunities and impacts.

The disclosure rules will be aligned with the recommendations of the Working Group on Climate-Related Financial Disclosures, but will have a broader scope beyond climate change. FCA is also seeking advice on the extent to which SDRs can remain consistent with the EU Sustainable Finance Disclosure Regulation, for the benefit of UK entities with cross-border activities.

  • Sustainable investment labels on certain investment products, which will describe the sustainability characteristics of the product in question. At this point, FCA’s preferred proposal would be to apply the labeling requirement to all investment products available to retail consumers (not just those marketed as sustainable) and to have five categories, ranging from “Not promoted as sustainable” to “Impact (aim to have a positive environmental or social impact) “. The UK has not incorporated the EU’s SFDR as part of its process to relocate Brexit legislation, but the FCA is considering an indicative mapping of the proposed labels to the SFDR provisions of the UK. EU.

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