FCA UK SDR policy reaction: ‘Sustainability Mixed Goals’ label “adds flexibility but ambiguity” for investors

FCA UK SDR policy reaction: ‘Sustainability Mixed Goals’ label “adds flexibility but ambiguity” for investors

29 Nov 2023

The FCA have published their final policy statement on its Sustainable Disclosure Requirements.

Reacting to the policy statement, Alex Quant, Head of ESG Research at XPS Investment, commented: ”The final policy provides welcome confirmation of the labels which UK asset managers will need to use to define the approach taken towards sustainability within their funds. The new fourth label is useful in that it allows for funds to incorporate a mix of assets at different stages of their sustainability journey, and therefore cater for different investors’ preferences - particularly useful for multi-asset funds. However, it does introduce more scope for confusion and ambiguity. Investment managers will still have discretion around how they define a sustainable activity or how they achieve impact, and therefore thorough due diligence is still required to really understand what’s going on under the bonnet for a given fund. “

The policy statement made clear the FCA’s final approach to Sustainability disclosire requirements which will come into force next year. The key update was the announcement of a fourth label, so that funds will be able to use the following labels depending on their approach:

• Sustainability Impact - at least 70% of portfolio invested to achieve a pre-defined measurable positive impact.
• Sustainability Focus - at least 70% of portfolio invested in assets that meet a standard of environmentally or social sustainability.
• Sustainability Improvers - at least 70% of portfolio invested in assets that have the potential to become more environmentally or socially sustainable over time.
• Sustainability Mixed Goals - at 70% invested across a combination of assets aligned with the above three categories.

The labels do not seek to provide any endorsement of a product’s suitability for an investor.

The labelling regime will come into force on 31 July 2024. This will follow anti-greenwashing rules coming in May 2024, and before naming and marketing rules which will apply from 2 December 2024.