The Financial Conduct Authority (FCA) has published its long-awaited policy statement on its Sustainability Disclosure Requirements – the full paper (PS23/16) can be found on the regulator’s website.
There are some changes from the earlier consultation, such as the addition of the ‘Sustainability Mixed Goals’ fund label to the existing ‘Impact’, ‘Improvers’, and ‘Focus’ categories; the adjustment of wording from ‘sustainable’ to ‘sustainability’; and applying the 70% minimum threshold of qualifying sustainable assets to all the labels (which previously only applied to the Sustainability Impact label).
Overall, though, the regulator is clearly continuing to concentrate on sustainable investing, tightening up definitions and requiring greater transparency – something we firmly support.
In our response to the consultation paper last year (CP22/20), we supported the anti-greenwashing rule but urged against making the fund labels mandatory. This was because we believed that the label definitions as they stood could be confusing and result in a large number of funds being mislabelled or not labelled at all, despite supporting sustainability objectives.
We are pleased to see that the FCA has adjusted its regulations to bring more clarity around how funds qualify for the different labels.
Sustainability and suitability: No change to the message
The message throughout the policy statement chimes with the conversations we have been having with advisers and product providers, as well as our observations of the regulatory regime here in the UK and in other jurisdictions. Sustainability and sustainable investing are now mainstream elements of financial services and must be taken into account during the advice process.
For advisers themselves, suitability is key – and Consumer Duty remains central to the regulator’s thinking. The FCA explicitly states that firms should:
- “Act in good faith to deliver sustainability-related products and services, taking into account the reasonable expectations of retail customers.”
- “Avoid causing foreseeable harm, including harm caused through greenwashing and buying unsuitable products.”
- “Enable and support retail customers to pursue their financial objectives, including where customers have sustainability-related needs and preferences as part of their investment objectives.”
Advisers will play an important role in ensuring the fund labels and other new disclosures are effective, which is also acknowledged by the regulator.
Advisers: The key to success?
Alongside the policy statement, the FCA also published the results of consumer research it undertook through Thinks Insight & Strategy, a research, analysis and behavioural science company.
The research consists of a series of qualitative studies with small groups of consumers with different levels of investment experience. The regulator highlighted several areas in which advisers and product distributors will be influential in ensuring the success of the new regime.
For example, many consumers within the study expect the FCA to allocate the labels to funds but, in reality, product providers will apply the labels themselves within the regulator’s framework.
Additionally, the FCA intends that there is no hierarchy among the four fund labels. However, the FCA acknowledges that consumers “are likely to place the labels into their own hierarchies according to their needs and preferences”.
This means that understanding each consumer’s preferences around sustainability and sustainable investing is paramount. This is why we have developed the Attitude to Sustainability Questionnaire (ATSQ), a straightforward and robustly tested tool to support the advice process.
The ATSQ is designed to facilitate conversations about sustainable investing between advisers and their customers and to support informed decision making. Contact us today to find out more about the questionnaire and how it could support your work.
While the FCA plans to establish an “independent working group” to further develop its sustainability guidance for the advice sector, there is plenty that advisers can do now to ensure the new disclosure regime works for the benefit of customers.
 See page 15 of PS23/16.
 See: Thinks Insight & Strategy and the Financial Conduct Authority, ‘Sustainability Disclosure Requirements (SDR) and investment labels regime (Qualitative Research’, published 24 November 2023. Link: https://www.fca.org.uk/publication/external-research/sdr-investment-labels-regime-qualitative-research.pdf
 The four labels are: Sustainability Impact, Sustainability Focus, Sustainability Improvers and Sustainability Mixed Goals.
 See page 18 of PS23/16.