The UK’s Financial Conduct Authority (FCA) has confirmed that its new rule aimed at combating greenwashing, the Sustainability Disclosure Requirements (SDR), will take effect on May 31 despite strong pushback from the country’s businesses, as reported by Reuters on April 23. The SDR applies to all FCA-authorized firms, aiming to ensure their sustainability-related claims are fair, clear, and not misleading. It grants the FCA the authority to challengecompanies that are deemed making misleading sustainabilityrelated claims about their products or services, and the right to take further action if necessary. Meanwhile, the FCA is also consulting with market participants on extending the scope of SDR, seeking to encompass not only asset managers but also various forms of portfolio management firms such as private equity. The expanded SDR rules are scheduled to be implemented on December 2, 2024.

The new FCA rules aim to bolster trust and transparency in sustainable investment products and avoid greenwashing risks. Acknowledging the lack of consistency in terminologies such as ‘green,’ ‘ESG,’ or ‘sustainable’ in the emerging sustainable finance market, the FCA intends to standardize and clarify their usage. It introduced the SDR in November 2023, requiring large-scale companies using these labels for their investment products to undertake product-level disclosures from December 2025, and a year later for smaller firms. In response, UK-based accounting firm EY [EY:US]cautioned about the extensive repercussions of the legislation. It emphasized the need for enterprises topromptly review all products and services within the scope of the SDR, assess their risk exposures, and craft a clear strategy to mitigate their greenwashing risks.

Sources:

https://www.reuters.com/sustainability/sustainable-finance-reporting/britains-anti-greenwashing-rule-finance-start-may-31-2024-04-23/

https://www.fca.org.uk/news/press-releases/fca-confirms-anti-greenwashing-guidance-and-proposes-extending-sustainability-framework#:~:text=In%20November%202023%20the%20FCA,effect%20from%2031%20May%202024.

https://www.bloomberg.com/news/articles/2024-04-23/uk-regulator-plans-to-broaden-scope-of-esg-investing-regulations