The FCA has pushed back the publication of its Policy Statement on Sustainability Disclosure Requirements (SDR) and investment labels to the third quarter of 2023.
The regulator said it received 240 responses to its consultation paper, which closed to submissions in January 2023. It said it was “carefully considering the feedback to ensure that first and foremost the regime protects consumers but also recognises and takes account of any practical challenges that firms may have”.
The FCA added that this includes, but is not limited to, “considering our approach to the marketing restrictions, refining some of the specific criteria for the labels and clarifying how different products, asset classes and strategies can qualify for a label, including multi-asset and blended strategies”.
When publishing the Policy Statement, the regulator intends to clarify matters regarding primary and secondary channels for achieving sustainability outcomes and independent verification of product categorisation to qualify for a label.
The regulator added: “There will be a place for all in-scope products within the overall package of measures. We agree it is important that consumers can navigate to those products that meet their needs and preferences. This includes products that may not qualify for a label, but nevertheless have some sustainability-related characteristics.”
Commenting on the update, Gemma Woodward, head of responsible investment at Quilter Cheviot, said: “Given the complexity of the topic and the scale of the response from the industry, it is good to see the FCA take its time with its policy statement on the Sustainability Disclosure Requirements. There is a mass of sustainable and responsible regulation being introduced just now, so it is important firms are given the time to plan and resource effectively and make the new policies a success. It is also vital that time is taken to make these final policies clear, concise and not allow them to lead to further confusion. It is vital sustainable and responsible investing is a success and part of this is ensuring advisers and investors can feel confident in what they are investing in.”
She welcomed FCA mention of potential changes to its approach on marketing, specific criteria for the labels and how different products can qualify for a label. “These are important sticking points, so it will be interesting to see what the FCA concludes from the consultation responses,, ” she said.
“For example, we must be crystal clear on what constitutes marketing. The FCA initially said it would prohibit firms from using certain terms in the naming and marketing of non-labelled products. As a result, there is a concern that things such as Stewardship Code responses or voting and engagement reports are deemed to be marketing documents and thus cannot be used in conjunction with non-labelled products, even if voting and engagement is going on under the bonnet. There are also potentially some unintended consequences with prohibiting the use of the word ‘sustainable’ to only labelled products given the use of terms like sustainable dividend. We understand the intent behind this, however, the reality is that certain words and terms are used to describe processes regardless of the sustainability credentials of a product.”
On the specific criteria for the labels, Woodward said it was important not to exclude lower risk strategies from being able to qualify.
“The industry is split over the 70% threshold for ‘sustainable focus’ – for some it’s either too high, but for others it is not enough. For a client 70% might not seem very high however the difficulty is how do you classify underlying holdings? For example, you would struggle to classify government bonds or cash as sustainable but there will be a number of cautious investors who want a sustainable portfolio but cannot take on the risk investing solely in equities provides.”
A final issue, she said, was that many discussions around SDR had been “entirely through the lens of a single strategy fund”, with other products being ignored. Managed portfolio services would not be able to get a label, she did, so “you are actually disadvantaging investors who invest in products more suited to those with fewer assets”.
Concluding she said: “The changes are going to be vast once they are introduced, so firms will need time to implement these, along with other policies from international regulators and bodies.”
