The Financial Conduct Authority (FCA) has published further guidance for firms intending to apply fund labels under the Sustainable Disclosure Requirements (SDR) regime, including additional best practice examples of pre-contractual disclosure requirements for all four SDR labels.
Last month, the FCA released a document highlighting pre-contractual disclosure examples for the Sustainability Improvers and Sustainability Focus labels, including three separate examples of good practice in terms of stating the fund objective, the link between objective and outcomes, investment criteria, and policies and procedures to monitor performance. The examples they gave were “based on our [the FCA’s] experience of applications to date and are non-exhaustive but are intended to aid applicants as they prepare their documentation”.
Although the publication noted that many of the observations were relevant across all labels, not just the two it highlighted, the FCA has updated the document to include specific examples for the Sustainability Impact and Sustainability Mixed Goals labels.
Sustainable finance “is a new and dynamic area”, wrote the FCA’s director of sustainable finance, Sacha Sadan, last week, adding that there has been a conscious effort to build in flexibility for firms.
“The regime enables companies to take different approaches, as long as they maintain robust standards and are clear and transparent about how they do things. As we were developing the rules, I met with many fund managers. These discussions confirmed that a non-prescriptive approach, aligned internationally, was the right way to go.”
But flexibility also means there is “more scope for interpretation”, and “we appreciate that can cause uncertainty”, Sadan continued.
“To help firms manage this uncertainty while maintaining consistently high standards, we have provided extensive support. We’ve had dozens of meetings, webinars and pre-application calls with firms thinking about using labels. We have set out examples across a selection of labels to showcase how applicants can meet the requirements. This week, we added further examples.
“It’s still early days for the regime. We recognise that changes to fund managers’ investment approaches require significant effort and will take time to phase in. But we are now seeing more and more funds adopting the labels. Others have decided not to and that’s ok. We have always acknowledged that some firms might not want to use sustainability labels.”
The labels “aren’t the end of the story”, Sadan concluded, but the measures the FCA has introduced “are helping to ensure the market is built on solid foundations”.
