FCA publishes Discussion Paper DP 21/4 - labelling ESG Investment products
What has happened?
In November 2021, the FCA published its Discussion Paper DP 21/4, inviting views on potential criteria for classifying and labelling ESG investment products. This is intended to help consumers understand their sustainability characteristics. The FCA is also gathering feedback on supporting entity-level and product-level disclosures.
This Discussion Paper will help the FCA develop its proposed rules, which it aims to consult on in Q2 of 2022.
What do you need to do?
In its most recent Financial Lives survey, the FCA found 80% of respondents wanted their money to ‘do some good’, while also providing a financial return, 71% wanted to ‘invest in a way that is protecting the environment’ and 71% would not put their money into ‘investments which are unethical’. If the financial sector is to respond effectively to this growing demand and help encourage positive change across the economy, consumers need high quality information and clear standards, and need to be able to trust firms to deliver on their promises. The FCA is encouraging stakeholders to engage with the Discussion Paper so that it can design a disclosure and labelling system to achieve this.
There could be benefits in requiring this information to be presented in an easily accessible and standardised way that is appropriate to the intended audience. To simultaneously meet the information needs of retail consumers and institutional investors, one approach being considered is a three-tiered system incorporating labels and disclosures.
The information to be included in this structure, including relevant metrics and methodologies, would reflect a consistent approach throughout the design, delivery and disclosure of sustainable investment products.
Product labels. A standardised product classification and labelling system would help consumers understand the sustainability characteristics of different products and navigate the products on offer.
Consumer-facing disclosures. Consumer-facing product-level disclosures could provide standardised information on the product’s key sustainability attributes. This would allow consumers to better understand the sustainability characteristics of the product, compare similar products or the same product over time, and hold the provider to account for sustainability claims made.
Detailed disclosures. Detailed disclosures could be made at entity and product level. These could provide more granular information than the consumer-facing disclosures, as well as additional information as relevant. The disclosures could be useful to institutional investors, as well as a broader range of stakeholders. Under this approach, the entity- and product-level disclosure requirements would build on the FCA’s proposed TCFD1-aligned disclosure requirements, widening the scope beyond climate to other sustainability factors.
1 the Taskforce on Climate-related Financial Disclosures
How can we help you?
If you’d like to know more about how we can help you with your ESG product arrangements, or with any other regulatory compliance issues, our expert team is here to help. Contact us today on 0207 436 0630 – or email info@thistleinitiatives.co.uk.