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UK-SDR Sustainability Disclosure Regime

The FCA plans to introduce sustainability disclosure rules for certain firms that align with the EU's Sustainable Finance Disclosure Regulation requirements. New rules will require in-scope firms to disclose sustainability risks, adverse impacts, remuneration policies, and promote transparency on ESG products. Disclosures aim to prevent 'greenwashing' and enable end investors to make informed decisions. Financial Conduct Authority (FCA) rules will differentiate disclosures for generic ESG integration vs products promoting ESG characteristics.


Enhanced Disclosure Standards for Sustainable Investments"

Stricter disclosure standards will apply for products targeting sustainable investment objectives. The new rules will provide clarity on definitions and use of terms like 'ESG', 'sustainable', 'green' for investment products. Firms must ensure their fund naming and investment labels accurately reflect ESG strategies and characteristics.

UK Investment Sector: Impact of New Sustainability Rules

Most asset managers, life insurers, pensions providers, investment advisors will need to comply based on assets under management. FCA released a policy statement at the end of 2023 with intention to finalise the rules for phased implementation over 2024-2025. Failure to comply could result in enforcement action. Firms should plan for implementation. The new sustainability disclosure rules and investment labelling requirements will fundamentally impact the UK investment sector.

    • Asset managers - The rules will apply to UK Undertaking for Collective Investment in Transferable Securities (UCITS) management companies, Alternative Investment Fund Managers (AIFM), and any asset managers with over £5 billion in assets under management. This will capture most mid-sized and large asset management firms.
    • Insurance companies - Life insurers and some non-life insurers writing investment, pension, or life products will need to comply. Applies to firms with over £5 billion in assets under management.
    • Pension providers - Occupational pension providers, personal pension firms, and stakeholder pension schemes with over £5 billion in assets under management.
  • Investment advisors - Firms providing investment advice services with over £5 billion in assets under advice.
  • Mortgage lenders and brokers - Residential and buy-to-let mortgage providers and brokers will need to make certain disclosures on ESG considerations in lending.
  • Distributors - Investment platforms, brokers, and other distributors will need to ensure sustainability-related disclosures are appropriately passed on to end clients.
  • Smaller firms are exempt but may need to provide information to larger firms they work with. The FCA encourages voluntary participation.

Overall, the rules will fundamentally impact how sustainability factors are integrated and communicated across the UK's investment value chain. Firm-level planning for compliance should now commence.