FCA's ESG Labelling Rules Delayed

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by KnowESG
KnowESG_FCA final rules for ESG being delayed
Image courtesy of Getty Images/iStockphoto

During an update on July 17 with Sam Woods, the deputy governor of prudential regulation at the Bank of England, FCA Chief Executive Nikhil Rathi confirmed that the policy statement for the Sustainable Disclosure Requirements (SDR) would not be released until the fourth quarter of 2023.

The SDR is a crucial component of the FCA's strategy to enhance the sustainable investment framework in the UK and combat greenwashing. It involves assigning three labels—sustainable focus, sustainable improvers, and sustainable impact—to green funds, aiming to make them more easily understandable for consumers.

The FCA concluded its consultation on January 25, with plans to publish a policy statement in the first half of the year. However, in March, the FCA acknowledged the need for additional time to review the substantial feedback received, including approximately 240 written responses.

The industry's response to the SDR has been mixed. ESG experts have praised the inclusion of the sustainable improvers label, which recognises funds that assist carbon-intensive companies in transitioning to net zero. Nonetheless, concerns have been raised about the potential for greenwashing within this category.

MPs have also expressed concerns about the FCA's narrow classification scope, which could result in a significant portion of UK funds being ineligible for a green label.

During a Treasury Committee hearing in February, Chris Cummings, CEO of the Investment Association, highlighted that many retail investment funds, including multi-asset, multi-manager, and index funds, would miss out under the current classifications, accounting for approximately 60% to 70% of all retail investments. As a result, he urged the FCA to reconsider its approach.

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Source: FN

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