Good summary Francesca
Plus don't forget Distributor rules - which bring into scope all UK discretionary portfolio management, investment advisory/IFAs, and execution only FCA regulated businesses as 'distributors' fund purchases to retail clients for UK Products (funds) using a Sustainability Label, and those using 'sustainability related terms' in their names i.e Non-labelled funds (see ESG Rule 4.1.16-19 and 4.3.2):
1. make information available to retail investors: clearly display Sustainability Labels / use of sustainability related terms in name and provide access to underlying consumer facing disclosures for in scope UK funds (relevant digital medium e.g. website or platform where product offered to clients or ordinary communication channel to clients) - as soon as practicable, plus link to FCA website on SDR information
2. For all overseas funds (not subject to UK SDR) - add notice to inform consumers product is based overseas and not subject to the UK Sustainable investment labelling and disclosure requirements
When:
- From 31 July 2024 (when UK fund managers may opt in and apply SDR labels)
- From 02-Dec-24 (+ use of UK sustainability related terms (non-labelled and labelled funds) O'seas funds notice
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James Doyle
Director, Green Finance, Investment Management
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Original Message:
Sent: 19-12-2023 11:21
From: Francesca Wheble
Subject: SDR - A brief overview...
3 weeks ago the FCA published the SDR Policy Statement following their consultation.
Here is a summary of the different components to the Policy Statement .
- Anti-greenwashing rule applies from May 2024
- Opt-in labelling regime: 3 Product categories (label / no label / other):
- Disclosures: Consumer facing product level disclosures, pre-contractual disclosures (label / no label), periodic disclosures (label / no label), management entity disclosures
- New naming and marketing rules
Key dates are in yellow highlight.
3 product categories:
| Labelled (L) | Non-Labelled (NL) | Other |
| | | |
Description | Opt-in for a label - Sustainability Focus
- Sustainability Improvers
- Sustainability Impact
- Sustainability Mixed Goals
| Use sustainability terminology in name or marketing | Not using sustainability in name or marketing |
Alignment | 70% aligned with sustainability objective (all labels) | 70% aligned with sustainability objective (only if ESG-related name) Cannot have 'Sustainable' in the name of the fund | No restrictions |
Disclosures | - Consumer facing
- Pre-contractual
- Periodic
| - Consumer facing
- Pre-contractual
- Periodic
- "No label" statement
| - No specific disclosures (BUT cannot use ESG in name or marketing)
|
Applies from | - 31 July 2024 (first opt-in date).
- Can opt-in after this date.
| | |
Documentation Deadlines | - Consumer facing (31 July 2024+)
- Pre-contractual (31 July 2024+)
- Periodic (12m after label assigned)
| - Consumer facing (2 Dec 2024)
- Pre-contractual (2 Dec 2024)
- Periodic (12m from when sustainability-related terms are first used)
- "No label" statement (2 Dec 2024)
| |
1. Which products are in scope?
- UK authorised funds (UCITs & AIFs)
2. Anti-greenwashing rule
- Consistent with E/S characteristics
- Fair, clear and not misleading
- First rule to come into play.
- Applicable to all FCA registered firms
- Any sustainability-related claims in any communication must be:
- Applies from: 31 May 2024
3. Product Labels (see Appendix 1)
- Opt-in regime
- Overarching principles around which the label criteria are structured:
- Sustainability Objective
- All products using a label must have a sustainability objective to improve or pursue positive environmental and/or social outcomes as part of their investment objectives.
- Sustainability Objective: Must be clear, specific & measurable as part of the products investment objectives.
- Investment Policy & Strategy
- At least 70% of products assets must be invested in accordance with its sustainability objective (reference robust, evidence-based standard that is an absolute measure of E/S sustainability)
- Determined using the robust, evidence-based standard that is an absolute measure of environmental and/or social sustainability
- KPIs
- Must identify KPIs to measure progress against the sustainability objective (measure progress of whole product / individual assets).
- Resources & Governance
- Must ensure there are appropriate resources, governance & organisational arrangements to support delivery of the sustainability objective.
- Stewardship
- Identify & disclose stewardship strategy needed to support delivery of sustainability objective, including activities they expect to take, and outcomes expect to achieve.
- MUST set out escalation plan to be able to take action when assets do not demonstrate sufficient progress towards sustainability objective / KPIs.
- Applies from: 31 July 2024 (first opt-in date). Can opt-in after this date.
- Sustainability Focus
- Focus on sustainability for people or the planet
- Determined using the robust, evidence-based standard that is an absolute measure of environmental and/or social sustainability
- Sustainability Improvers
- Assets that may not be sustainable now, with an aim to improve their sustainability for people or the planet over time.
- Firms must develop short- and medium-term targets for improvements - should be consistent with the investment horizon for the product.
- Sustainability Impact
- Invest in solutions to sustainability problems, aim to achieve positive impact for people or the planet.
- Measurability can be quantitative or qualitative, as long as robust and details of the impact achieved are clearly disclosed.
- Sustainability Mixed Goals
- Invests in a mix of assets that either focus on sustainability, aim to improve their sustainability overtime, or aim for positive impact.
- Multi-asset fund / fund of funds focus.
Disclosures
- Consumer facing document
- For products sold to retail customers (products using sustainability label or using sustainability-related terms in their naming & marketing)
- Applies from date a label is first used (31 July 2024 earliest) / products without a label (2 December 2024)
- Product level
- Pre-contractual disclosures in fund prospectus
- Applies from date a label is first used (31 July 2024 earliest) / products without a label (2 December 2024)
- Ongoing reporting
- Annual disclosures
- Disclosure on progress & KPIs / metrics & performance.
- Applies annually, after 12m from date on which label is first used / 12m from when sustainability-related terms are first used (Earliest reports 31 July 2025).
- Entity-level disclosures
- Disclosure on firm-level governance, risk management, strategy, metrics & targets (build on TCFD)
- May be useful to include other reporting frameworks e.g., TNFD, ISSB, SASB, GRI.
- Firms using labels & those using sustainability related terms in their product names and marketing need including.
- Applies from 2 Dec 2025 (larger firms) / 2 Dec 2026 (smaller firms), then annually
5. Naming & Marketing Rule
- Terminology: ESG, environment, social, climate, sustainable, green, transition, net zero, impact, responsible, SDGs, Paris-aligned, any other term which implies that a product has sustainability characteristics.
- Firms can use sustainability-related terms in product names & marketing IF either:
1. They use a label
2. They meet new product name, disclosure, and statement conditions (conditions include clarifying that the product doesn't use a label and why)
- Don't apply when firms are making short, factual, non-promotional statements about a product.
- e.g., to describe 'economic climate' or 'financial impact.'
- Non-Labelled Funds:
- Sustainability terms IN NAME
- Products MUST have sustainability characteristics
- 70% alignment of investments
- CANNOT use "sustainable" or "impact" in name
- Similar disclosures for labelled products
- "No label" statement
- Sustainability terms IN MARKETING
- Similar disclosures for labelled products
- "No label" statement
- Applies from 2 Dec 2024.
Would be great to hear your views on your next steps with the regulation...
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Francesca Wheble
Responsible Investment Analyst
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