The FCA has set out its proposals for a UK regime for financial services sustainability disclosure requirements (SDR) in an October 2022 consultation paper (CP22/20) (the CP). Firms looking to provide feedback on the CP must do so soon; the paper closes for comment at the end of this month (on 25 January 2023). SDR in the UK is just one aspect of the broader push on ESG-related reporting and disclosures, set to gather pace in 2023.

The FCA confirms in the CP that tackling greenwashing is a key priority, defining greenwashing as: “firms…making exaggerated, misleading or unsubstantiated sustainability-related claims about their products; claims that don’t stand up to closer scrutiny.”

The FCA also uses the CP to set out its view that the financial services sector has a key role to play in helping the UK economy adapt to the transition to net zero. The FCA is concerned that greenwashing could “slow the flow of much-needed capital to investments that can genuinely drive positive change.” The FCA confirms its concern that the practice is quickly eroding trust in the market for sustainable investment products and that it is working to “build guardrails” to prevent consumers losing this trust as a matter of urgency.

The SDR contains specific proposals to bind asset management firms (including disclosure requirements, rules around naming of investment products and an option to attach sustainable investment labels to products), which are likely to come into force in the middle of 2024. Note that the FCA is considering extending rules to regulated asset owners and distributors of retail investment products. 

Firms should take note that the FCA is also proposing a general “anti-greenwashing” rule confirming that all regulated firms should ensure that sustainability-related claims are clear, fair and not misleading. On the basis that this reiterates existing regulatory principles, the FCA proposes that the rule takes effect from the middle of 2023. Thus, the SDR proposals are of interest to all FCA regulated firms, not just those within the asset management industry.