FCA could extend sustainability disclosure rules to pension products
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The Financial Conduct Authority will consider “in the medium term” whether to expand new rules on sustainability disclosures, currently aimed at retail funds and portfolios, to include pension products.
The FCA has confirmed new rules on labelling and marketing sustainable products for retail investors, as it looks to improve transparency and tackle greenwashing in a burgeoning market of an estimated $18.4tn (£14.6tn) globally.
The regulator has said it will consider extending the regime to pension products in the medium term, stating in its policy statement: “We recognise that the potential harms we are seeking to address with this regime may also arise with these products.”
Director of environmental, social and governance, Sacha Sadan, said while “for now this is a retail consumer lens”, the FCA is working with the Pensions Regulator and Department for Work and Pensions.
For now, some of the new rules that institutional investors will notice include an anti-greenwashing rule that applies to the whole market, to ensure that sustainability-related claims are “fair, clear and not misleading”, coming into effect from 31 May 2024. A consultation on anti-greenwashing guidance runs until 26 January.
New product label rules apply to UK asset managers. The labels can be used from 31 July next year and are intended to help investors understand what their money is being used for based on four sustainability goals. The FCA added a fourth label since its consultation last year, to include products with mixed goals. The other three are ‘sustainability impact’, ‘sustainability focus’ and ‘sustainability improvers’.
UK managers’ products will also be subject to naming and marketing requirements, which mean products cannot be described as having a positive impact on sustainability when they do not, effective from 2 December 2024. The restrictions on naming and marketing have been relaxed slightly compared with last year’s proposals, following industry feedback.
A new requirement for detailed information in pre-contractual, ongoing product-level, and entity-level disclosures is targeted at institutional investors and consumers seeking more information.
As sustainability and ESG are increasingly embedded in investment markets, the FCA is seeking to get a tighter grip on how such products are sold, and on companies previously outside its remit, such as ESG data and ratings providers.
Regulators have sharpened their focus on sustainability following scandals around sustainability claims. In 2022, the chief executive of German asset manager DWS resigned after police raided the firm’s Frankfurt offices over greenwashing claims, while HSBC was accused of misleading customers about its green credentials by the UK’s advertising watchdog.