BDO comment: Sustainability Disclosure Requirements (SDR) confirmed by FCA
BDO comment: Sustainability Disclosure Requirements (SDR) confirmed by FCA
Richard Weighell, Financial Services Advisory Partner at BDO, comments on the publication of the FCA’s policy statement on new rules designed to tackle greenwashing.
"This is arguably the most significant policy statement by the FCA relating to sustainability regulation to date. It comes less than two weeks after the FCA warned fund managers that “further work” was needed to ensure the regulator’s guiding principles for ESG and sustainable investment funds are being embedded. It sends a clear signal that ESG and sustainability is very much a priority for the FCA.”
The consultation opened in October 2022 and closed on 25 January of this year. The policy statement was originally due to be published by 30 June, and then by the end of Q3, before finally being published on 28 November 2023. The FCA stated the delays were due to the significant written response to the consultation paper. It is understood that other factors, such as the need to consider and align to other international regulatory developments in respect of ESG and sustainability, contributed to the delay as well.
The policy statement contains noticeable differences from the consultation paper published in October 2022. The key differences being that the labels have changed from three to four non-hierarchical categories: Sustainability Focus, Sustainability Improvers, Sustainability Impact and Sustainability Mixed Goals.
In addition, the timeframe has changed. The anti-greenwashing rule comes into force on 31 May 2024, which was expected to apply as of when the rules were published. Firms can begin to use the labels with accompanying disclosures as of 31 July 2024, and the naming and marketing rules are effective on 2 December 2024. Reporting at the product level is still implemented gradually; for firms with assets under management (AUM) >50bn it applies from 2 December 2025 and at the entity-level from 2 December 2026. Despite this, the final rules are consistent with the consultation paper in that they centre around two key components: sustainability disclosure requirements and sustainable investment labels.
Richard Weighell at BDO added: “The disclosure requirements mean certain financial services firms will need to report on their sustainability risks, opportunities and impacts and build on existing frameworks such as the Taskforce on Climate-related Financial Disclosures (TCFD) and the UK Green taxonomy, but also incorporate wider sustainability matters other than the environment.
“On the labelling side, the proposed investment labels related to sustainability characteristics will need to be applied to certain investment products.
“Ultimately, this is about establishing a consistent and comparable way for financial services firms to report their sustainability performance, thus reducing the risk of greenwashing. It’s also about giving retail and institutional investors a reliable means of comparing sustainable products and services – something which arguably hasn’t been possible to date.
“Regarding the impact for investors, the new anti-greenwashing rule seeks to reduce the risk that sustainability-related claims are unclear, unfair or misleading. This is through the introduction of a restriction on the use of sustainability-related terms in the naming and marketing of products and services offered, aiming to increase investors’ confidence in investment products and services and protecting them from greenwashing. The labelling and disclosures rules will also help investors distinguish between different types of investment products based on their sustainability-related objectives. The entity and product level disclosures will provide an additional layer of information and transparency.”
Weighell concludes: “Firms now have the challenge of implementing the disclosure and labelling rules from 31 of July 2024 (as applicable) and the anti-greenwashing rule applicable to all regulated financial institutions, as previously signposted applies from 31 May 2024. In-scope firms must review their sustainability-related disclosures and product labels as a matter of priority to comply with these new and complex requirements, as well as continuing to implement and/or embed other ESG and sustainability-related requirements to both domestically and internationally” BDO will shortly be publishing a more in-depth analysis of the policy statement on its website, as well as running webinars in January.”
You can find out more about why ESG matters for financial services firms here.
ENDS
The organisations we work with are Britain’s economic engine –entrepreneurially-spirited, high-growth businesses that fuel the economy.
We understand the ambitions and entrepreneurial mindset of those we work with and have the global reach, integrity and expertise to help people and businesses succeed.
BDO LLP
BDO LLP operates in 17 offices across the UK, employing 7,500 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.
BDO’s global network
The BDO global network provides business advisory services in 164 countries and territories, with 111,300 people working out of 1,803 offices worldwide. It has revenues of US$12.8bn.
Head of PR
BDO
Tel: 07709 485 877
Email: laura.cairns@bdo.co.uk
"This is arguably the most significant policy statement by the FCA relating to sustainability regulation to date. It comes less than two weeks after the FCA warned fund managers that “further work” was needed to ensure the regulator’s guiding principles for ESG and sustainable investment funds are being embedded. It sends a clear signal that ESG and sustainability is very much a priority for the FCA.”
The consultation opened in October 2022 and closed on 25 January of this year. The policy statement was originally due to be published by 30 June, and then by the end of Q3, before finally being published on 28 November 2023. The FCA stated the delays were due to the significant written response to the consultation paper. It is understood that other factors, such as the need to consider and align to other international regulatory developments in respect of ESG and sustainability, contributed to the delay as well.
The policy statement contains noticeable differences from the consultation paper published in October 2022. The key differences being that the labels have changed from three to four non-hierarchical categories: Sustainability Focus, Sustainability Improvers, Sustainability Impact and Sustainability Mixed Goals.
In addition, the timeframe has changed. The anti-greenwashing rule comes into force on 31 May 2024, which was expected to apply as of when the rules were published. Firms can begin to use the labels with accompanying disclosures as of 31 July 2024, and the naming and marketing rules are effective on 2 December 2024. Reporting at the product level is still implemented gradually; for firms with assets under management (AUM) >50bn it applies from 2 December 2025 and at the entity-level from 2 December 2026. Despite this, the final rules are consistent with the consultation paper in that they centre around two key components: sustainability disclosure requirements and sustainable investment labels.
Richard Weighell at BDO added: “The disclosure requirements mean certain financial services firms will need to report on their sustainability risks, opportunities and impacts and build on existing frameworks such as the Taskforce on Climate-related Financial Disclosures (TCFD) and the UK Green taxonomy, but also incorporate wider sustainability matters other than the environment.
“On the labelling side, the proposed investment labels related to sustainability characteristics will need to be applied to certain investment products.
“Ultimately, this is about establishing a consistent and comparable way for financial services firms to report their sustainability performance, thus reducing the risk of greenwashing. It’s also about giving retail and institutional investors a reliable means of comparing sustainable products and services – something which arguably hasn’t been possible to date.
“Regarding the impact for investors, the new anti-greenwashing rule seeks to reduce the risk that sustainability-related claims are unclear, unfair or misleading. This is through the introduction of a restriction on the use of sustainability-related terms in the naming and marketing of products and services offered, aiming to increase investors’ confidence in investment products and services and protecting them from greenwashing. The labelling and disclosures rules will also help investors distinguish between different types of investment products based on their sustainability-related objectives. The entity and product level disclosures will provide an additional layer of information and transparency.”
Weighell concludes: “Firms now have the challenge of implementing the disclosure and labelling rules from 31 of July 2024 (as applicable) and the anti-greenwashing rule applicable to all regulated financial institutions, as previously signposted applies from 31 May 2024. In-scope firms must review their sustainability-related disclosures and product labels as a matter of priority to comply with these new and complex requirements, as well as continuing to implement and/or embed other ESG and sustainability-related requirements to both domestically and internationally” BDO will shortly be publishing a more in-depth analysis of the policy statement on its website, as well as running webinars in January.”
You can find out more about why ESG matters for financial services firms here.
ENDS
Note to editors
Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.The organisations we work with are Britain’s economic engine –entrepreneurially-spirited, high-growth businesses that fuel the economy.
We understand the ambitions and entrepreneurial mindset of those we work with and have the global reach, integrity and expertise to help people and businesses succeed.
BDO LLP
BDO LLP operates in 17 offices across the UK, employing 7,500 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.
BDO’s global network
The BDO global network provides business advisory services in 164 countries and territories, with 111,300 people working out of 1,803 offices worldwide. It has revenues of US$12.8bn.
Contacts
Laura CairnsHead of PR
BDO
Tel: 07709 485 877
Email: laura.cairns@bdo.co.uk