News

Tight Timeline for FCA Anti-greenwashing Rule

Guidance incomplete ahead of May deadline, as UK government confirms consultation on applying SDR to overseas funds. 

Industry experts have warned that that the timeline for implementation of the UK Financial Conduct Authority’s (FCA) anti-greenwashing rule could be challenging for asset managers and other regulated firms. 

The rule is due to come into force in less than four months, on 31 May, but a consultation on the rules only closed at the end of last month and the finalised guidance is yet to be published. 

The rule will apply to all FCA-authorised firms that make sustainability-related claims about products and services, requiring such references are “fair, clear and not misleading and proportionate to the sustainability profile of the product and service”. 

“Considering the anti-greenwashing guidance is yet to be finalised, the timeline may pose challenges,” Louisa Guy, Policy Analyst at the Principles for Responsible Investment, told ESG Investor. 

James Alexander, Chief Executive at the UK Sustainable Investment Forum (UKSIF), stressed that the rule is a “pretty big but important ask”.  

“The anti-greenwashing rule coming in hasn’t necessarily been finalised based on the consultation responses,” he added. “We want to see the finalised approach as soon as possible.” 

UKSIF had suggested that, while the anti-greenwashing rule should be introduced as scheduled on 31 May, the full guidance as drafted and consulted on should come into effect on 2 December alongside the FCA’s naming and marketing rules. 

Alexander the rule’s introduction will be “strong and positive addition to the FCA’s overall policy framework” given the risk greenwashing poses in undermining confidence in the sustainable investment industry.  

SDR on schedule 

The FCA recently launched a dedicated webpage compiling an implementation timeline for its sustainability disclosure and labelling regime – including the anti-greenwashing rule – and guidance for impacted asset managers and firms. 

From 31 July, firms will be able to use Sustainability Disclosure Requirements (SDR) labels, including the Sustainability Mixed Goals label added last November. Morningstar has estimated approximately 300 UK open-and closed-end funds would opt for one of the four SDR labels by the end of this year. 

While investment labels, disclosure, and naming and marketing rules will initially only apply to UK funds offered to retail clients, they will eventually be extended to institutional investors. 

The FCA’s naming and marketing rules will come into effect on 2 December this year, alongside accompanying disclosures. If asset managers want to use words such as ESG, green, sustainable or impact they will need to have one of the authority’s four sustainable labels. 

Alexander noted that delays to the regime could have a knock-on impact on the launch of new sustainable funds. “I think the FCA has got these dates about right and I think part of is because they spent a lot of time working with industry,” he added. “I don’t think there’s much scope to go a lot faster.” 

Firms with more than £50 billion (US$63 billion) in AUM will be subject to ongoing product-level and entity-level disclosures from 2 December 2025, and will be extended to firms with more than £5 billion in AUM a year later. 

Extending SDR’s reach 

The UK government has confirmed intentions to consult on whether to broaden the scope of SDR to include funds recognised under the Overseas Funds Regime 

Concerns had been raised that many exchange traded funds (ETFs) would not be eligible for the UK’s SDRs due the labels only being available to UK-domiciled fund, while ETFs are often cross-border products domiciled in Ireland or Luxembourg. 

The FCA has said all UK marketed products should to be subject to the same broad requirements, but highlighted HM Treasury would be responsible for any overseas extension of SDR. 

Carol Thomas, Head of Sustainability and Responsible Investments at the Investment Association, said the consultation on applying SDR to overseas funds underlined the importance of communicating the sustainability profile of overseas funds being marketed in the UK. 

UKSIF’s Alexander also flagged the importance of the consultation. “It not only levels the playing field but it also sets the UK is regulation as the bar. It puts us in a leadership position and encourage other countries around the world to adopt something similar to the UK,” he said. 

The government stressed it will ensure industry has “adequate time” to adapt to any future requirements.

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

Copyright © 2024 ESG Investor Ltd. Company No. 12893343. ESG Investor Ltd, Fox Court, 14 Grays Inn Road, London, WC1X 8HN

To Top
Share via
Copy link
Powered by Social Snap