The FCA has delayed the implementation of sustainable investment labels to allow it to take account of other international policy initiatives.
In an update yesterday (July 4), the regulator said it had aimed to consult on the sustainability disclosure requirements (SDR) in the second quarter of the year, but will now undertake the exercise this autumn.
It said this will "allow us to take account of other international policy initiatives and ensure stakeholders have time to consider these issues".
Last month the Securities and Exchange Commission proposed a new set of rules on climate-related disclosures, to be phased in from 2023.
If adopted, these will require funds and advisers to provide more specific ESG disclosures in fund prospectuses, annual reports, and adviser brochures.
Funds with a "consideration of environmental factors" would need to disclose the greenhouse gas emissions associated with the investments in their portfolios, and those claiming to have a specific ESG impact would need to outline that impact and summarise their progress towards their goals.
Incoming regulation
SDR will require the environmental impact of all activities financed by every investment product to be outlined, and for the clear justification of any sustainability claims made by said products.
Asset managers will also have new requirements, including setting out how they incorporate sustainability into their investment strategy, and certain firms will need to publish their transition plans in light of the UKs net zero commitment.
The government is also planning to release a green taxonomy, which will outline which economic activities count as green, and some companies and financial products will be required to report their environmental impact against this.
The challenge of implementation
Implementation of SDR in the UK is going to be a challenge as most financial services companies are not ready, according to an expert.
Speaking at a seminar last week, Louisiana Salge, senior sustainability specialist at EQ Investors, said the expertise, qualifications and resources companies need to ensure they can adhere to SDR should not be underestimated.
“You do need to think differently if you are going to implement SDR in a sincere way, for the right reasons,” she said.
“I don't think that the vast part of the finance sector is ready for this…I think [implementation] is going to be a challenge.”
Salge said she can see a lot of firms are not where they should be in terms of preparation for SDR, and a lot of this is down to a lack of investment in the past.
She added her concern over the speed at which companies need to improve their sustainability practices.
“The guidance is coming out at almost the same time as the regulation hits,” she said, highlighting the risk some companies will face if they haven’t already begun to improve their reporting practices.
Overall the regulations should be a good thing, Salge said.
“There needs to be some appreciation of people that are doing sustainable investing properly versus those who are jumping on the bandwagon.”
