Fca Sustainability Disclosure Requirements (SDR) And Investment Labelling Regime Flashcards
Briefly explain what Sustainability Disclosure Requirements (SDR) are
- Ensures that consumers of sustainability investment products are not misled by poor marketing or labelling.
- This along with the anti-green washing rule requires funds the claim to be sustainable to opt into one of the four sustainability labels
- Briefly, the four sustainability labels are:
A. Sustainability focus.
B. Sustainability improvers.
C. Sustainability impact.
D. Sustainability mixed goals. - The four labels to help investors understand how sustainable an investment product is. Each label reflects a different approach to sustainability.
The Sustainability Disclosure Requirements (SDR) has 4 sustainability labels. What are these labels?
- Sustainability Focus
A. The product invests in assets that are already environmentally or socially sustainable.
B. These assets must meet a strong, evidence-based sustainability standard.
C. Example: A fund that only includes companies with net-zero carbon emissions - Sustainability Improvers
A. The product invests in assets that are not fully sustainable yet but have the potential to improve over time.
B. The goal is to help these assets become more sustainable in the future.
C. Example: A fund that invests in companies transitioning to renewable energy - Sustainability Impact
A. The product is designed to actively create a measurable, positive environmental or social impact.
B. It is not just about investing in sustainable companies but driving real change.
C. Example: A fund that directly finances renewable energy projects or supports businesses that provide clean water access - Sustainability Mixed Goals
A. The product combines elements of Sustainability Focus, Sustainability Improvers, and Sustainability Impact.
B. It can invest in already sustainable assets, assets improving their sustainability, and/or investments aiming to make a positive impact.
C. Example: A fund that includes both companies that are already green and those transitioning to sustainability, plus investments that support social impact projects.
The sustainability labels set by the FCA come with five overarching principles.
What are these principles?
- Sustainability objectives -
goals an investment product sets regarding sustainability. - Investment policy and strategy -
explains how the investment product will achieve its sustainability objectives (I.e. what types of assets to invest in and approach to take) - Key performance indicators (KPIs) - measurable metrics used to track how well an investment is meeting its sustainability goals.
- Resources and governance -
refers to the people, systems, and processes that ensure the investment follows its sustainability commitments. - Stewardship -
involves actively engaging with the companies or assets an investment product holds.
The sustainability labels set by the FCA come with five overarching principles.
Principle 1: sustainability objectives
Briefly explain what this principle is
- All products using a label must have a sustainability objective to improve or pursue positive environmental and/ or social outcomes as part of the investment objectives
- Firms must identify and disclose whether pursuing the positive sustainability outcomes may result in material negative outcomes.
The sustainability labels set by the FCA come with five overarching principles.
Principle 2: investment policy and strategy
Briefly explain what this principle is
- At least 70% of assets must directly support a sustainability objective -
A. This means that at least 70% of the investments must align with a strong, evidence-based sustainability standard.
B. The standard must be absolute - based on clear, measurable environmental or social criteria (e.g., reducing carbon emissions, promoting fair wages).
- Firms must disclose any other assets and explain why they are included.
A. If the product holds other types of assets that don’t meet the sustainability standard, the firm must explain what they are and why they are held.
B. Ensures transparency, so investors know exactly what they are investing in.
The sustainability labels set by the FCA come with five overarching principles.
Principle 3: key performance indicators
Briefly explain what this principle is
- Firms must identify KPIs to measure progress of the whole product or individual assets against the sustainability objective
- Measurable metrics used to track how well an investment is meeting its sustainability goals.
- If an asset fails to meet its sustainability targets or KPIs, the firm must decide how to respond:
A. Firms must also set out an escalation plan to be able to take action when assets within the 70% threshold do not demonstrate sufficient progress towards the sustainability objective and/or KPIs
The sustainability labels set by the FCA come with five overarching principles.
Principle 4: resource and governance
Briefly explain what this principle is
- Firms are responsible for appropriate resources, governance and organisational arrangements to support delivery of the sustainability objective
I.e have the right people, systems, and processes in place to ensure they can effectively deliver on their sustainability objectives.
- Resources - have sufficient expertise, tools, and data
- Governance - have clear oversight and accountability
The sustainability labels set by the FCA come with five overarching principles.
Principle 5: stewardship
Briefly explain what this principle is
- Firms must identify and disclose the stewardship strategy needed to support the delivery of the sustainability objective, including activities they expect to take and outcomes they expect to achieve
- The stewardship strategy - outlines how firms will influence and support companies in meeting sustainability goals.
Briefly explain the concept of cancellation rights for retail clients
- Retail client has the right to cancel a:
A. Packaged product within 14 days.
B. Cancellation period for Life policies and pension (personal and stakeholder) is 30 days
A firm must have records concerning the exercise of a right to cancel or withdraw, and must retain them.
What is the retention period of these records?
- Indefinitely in relation to your pension transfer, pension opt-out FSAVC
- At least five years in relation to a life policy, pension contract, personal pension scheme or stakeholder pension scheme
- At least three years in any other case.
