FCA delays ESG labelling consultation

SDR delayed to allow regulator take into account not-yet-decided international policies

Financial Conduct Authority


Natalie Kenway

The Financial Conduct Authority (FCA) has delayed its consultation into Sustainability Disclosure Requirements (SDR) until the autumn, as it awaits further clarification on what potential international ESG initiatives will look like.

In an update on 4 July, the UK regulator said: “We had aimed to consult in Q2 of 2022. We are now planning on consulting in the autumn, to allow us to take account of other international policy initiatives and ensure stakeholders have time to consider these issues.”

No details were provided by the FCA about which international policy initiatives or stakeholders were the drivers behind the decision to push the consultation to the autumn, but the FCA had already committed to using the International Sustainability Standards Board (ISSB), the IFRS framework that will inform companies on how to disclose on sustainability and climate change credentials, as a baseline.

However this is unlikely to be ready until the end of the year – most recently, the IFRS invited feedback for two proposed standards in March.

The SDR consultation follows a discussion paper, published in November 2021, seeking initial views on sustainability disclosure requirements, as well as the sustainable investment labelling system.

However, the SDR, dubbed as the UK’s answer to the EU’s Sustainable Finance Disclosure Requirements (SFDR), was not mentioned in the Queen’s Speech in May as expected.


Kate Fowler, senior responsibility analyst at Federated Hermes, said it seemed sensible for the FCA to wait for the outcome of the ISSB standards. “While we are keen to see the UK SDR framework move forward to improve the flow of sustainability information across the investment chain, the FCA does face challenges given its commitment to use the ISSB standards to create a baseline level of international interoperability as the ISSB standards are still themselves in relatively early stages of development.

“Greater international interoperability through alignment with ISSB standards should help to reduce the burden on companies and investors required to report in multiple jurisdictions.”

She added it is also important that careful consideration is given to sequencing, so that disclosure requirements are in force for UK corporates before asset managers are required to disclose aggregated data.

“The most comprehensive way to do this would be through primary legislation, and the omission of the SDR from the Queen’s Speech earlier this year has likely impacted the FCA’s decision to postpone consultation on the application of SDR to asset managers.”

However, Becky O’Connor, head of pensions and savings at Interactive Investor, said it’s vital there are no further delays: “The City regulator’s role in clarifying what it means for an investment to be green and preventing greenwash is absolutely paramount to the government’s goals and also for normal investors who want to see their money working towards a better environment.

“It’s vital this consultation doesn’t perpetually get kicked further down the road.

“The investment industry – as well as people who want to invest their pensions and ISAs sustainably – need the transparency and peace of mind that official disclosures and labels will give them – sooner rather than later.”

A version of this article first appeared on Portfolio Adviser

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