For the City of London to become the world’s first net zero-aligned financial centre, it will be vital to ensure that the market for sustainable investment products is transparent, credible and consistent. E3G welcomes the Financial Conduct Authority’s measures to improve the integrity of this market by introducing Sustainability Disclosure Requirements (SDR) and Investment Labels.
E3G provided feedback on the FCA’s discussion paper on SDR and Investment Labels, building on our previous response to the FCA’s earlier consultation on SDR in January 2022. In our response, E3G emphasised the following key priorities for the FCA:
- The FCA should extend the scope of its requirements to funds marketed in the UK by firms domiciled overseas within a definite timeframe to prevent greenwashing.
- Firms with under £5 billion AUM should be encouraged to report on a voluntary basis and be included in the regime within a definite timeframe.
- FCA Investment labels should define ‘sustainable’ according to a credible, objective and science-based standard, such as the UK’s Green Taxonomy, when established. This will prevent confusion arising from competing sustainability standards.
- Funds receiving the FCA’s Investment Labels should operate within additional guardrails, including alignment with a whole-economy approach to decarbonisation and protections for nature and biodiversity. The FCA should mandate strict exclusion criteria for fossil fuel investments for any product receiving one of the three proposed labels.
- The FCA should provide further guidance on the metrics that will be used to evaluate funds receiving the ‘Sustainable Improver’ label and could refer to the work of the Transition Plan Taskforce in doing so.
- The FCA should introduce an ‘unsustainable’ investment label, to encourage firms to align their investment portfolios with net zero.
- Requirements for entities should include transition plans and clear stewardship guidance including for fossil fuel phase-out.
- We welcome the FCA’s willingness to align its framework with evolving ISSB standards. This should be done as soon as possible.
- The FCA could consider introducing a voluntary guidance template for firms, to assist economy-wide data gathering on financial flows.
- All funds should be required to report on how they integrate ESG considerations into their decision-making process, whether or not they receive a sustainability label.
E3G submitted a response to the FCA’s Discussion Paper on 25 January. Read our full response here.