Responding to the Financial Conduct Authority’s Consultation on Sustainability Disclosure Requirements (SDR) and investment labels

Published on
25th January 2023

We warmly welcome the FCA’s proposals for Sustainability Disclosure Requirements (SDR) and investment labels, which we believe are a significant step towards meeting the vital objective of enhancing consumer trust in sustainability products through clearer and more reliable product descriptions.

We are pleased to have contributed directly to the FCA’s work as a member of the Disclosures and Labels Advisory Group (DLAG).

Whilst there is much with which we agree on the design of the Sustainable Impact label, we are concerned that a few key features do not align with, nor accommodate the direction of travel of the global impact investing market. Furthermore, these key features risk confusing consumers. Consequently, we are concerned that some ‘best in class’ impact investing products, that have a strong theory of change and robust metrics and disclosures, would struggle to be eligible for the label as currently designed. This would also lead to confusion within other FCA labels, as impact products could be forced into the Sustainable Focus or Sustainable Improvers labels.

We strongly endorse the FCA’s requirement for Sustainable Impact products to have a theory of change and recommend that the FCA provides a fuller explanation of its role and structure – how it is the mechanism that sets the investment objectives and strategy, and governs the process for determining asset selection, investor contribution, KPI selection for measurement and reporting, and mitigation and escalation strategies for those occasions when intended outcomes are not achieved. 

Strengthening the overarching framework of the Sustainable Impact label in this way allows for more expansive criteria with regards to demonstrating impact – thereby allowing for the full range of asset types and strategies that can deliver impact.

  • Firstly, it recognises that assets in both the private and public markets have the capacity to provide ‘‘sustainability solutions to environmental and/or social problems”. In making it easier for public market assets to be eligible, it allows for the inclusion of funds that are typically more accessible and attractive to retail investors.
  • Secondly, it recognises that investor contribution can be achieved through capital allocation and/or investor stewardship. We recommend these are not presented in a hierarchy (‘primary channel’ vs ‘secondary channel’ for sustainability outcomes) but alongside one another.

We have hosted roundtables and gathered feedback to provide the FCA with the views of leading impact investors and others experts amongst our supporters and networks, which fed into our consultation response.

You can read our full response below.

Related files

File published on 25th January 2023