We're offering firms temporary flexibility to comply with ‘naming and marketing’ rules under our Sustainability Disclosure Requirements regime until 2 April 2025.
Our Sustainability Disclosure Requirements (SDR) and investment labels regime (PS23/16[2]) were published on 28 November 2023.
With global assets under management in environmental, social and governance (ESG)-oriented assets expected to increase to $34trn by 2026[3], this package of measures, including the consumer-focused labels, will:
- protect investors by helping them to make more informed decisions when investing
- help maintain the UK’s position as a world-leading, competitive centre for asset management and sustainable investment
Our anti-greenwashing rule[4] took effect from 31 May 2024. Since 31 July 2024 managers of UK-based investment funds have been able to use investment labels on their products.
Firms should now be taking all reasonable steps to ensure compliance with the ‘naming and marketing’ and disclosure rules, which come into force from 2 December 2024.
The SDR is a new regime that raises the bar. We have provided support to firms to help them meet these new higher standards.
In recent weeks, we have been encouraged to see good progress made by firms to comply with the rules, and a strong pipeline of fund applications from firms wishing to use the labels.
Through engagement with industry and their representative trade bodies, it has become clear it has taken longer than expected for some firms to make the required changes. In particular, some firms wishing to use an investment label, or which need to change the names of their products, require more time to meet the higher standards and prepare the disclosures needed for our approval.
Given the importance of getting SDR right for investors, we are seeking to take a pragmatic and outcomes-based approach to provide further support to those firms which may need additional time to operationalise any changes required.
Temporary flexibility
We are offering limited temporary flexibility, until 5pm on 2 April 2025, for firms to comply with the ‘naming and marketing’ rules (i.e. ESG 4.3.2R to ESG 4.3.8R of the ESG sourcebook[5]) in relation to a sustainability product[6] which is a UK authorised investment fund in exceptional circumstances where the firm:
- has submitted a completed application for approval of amended disclosures in line with ESG 5.3.2R for that fund by 5pm on 1 October 2024; and
- is currently using one or more of the terms ‘sustainable’, ‘sustainability’ or ‘impact’ (or a variation of those terms) in the name of that fund and is intending either to use a label, or to change the name of that fund
Where firms can comply with the rules without requiring this flexibility, they should do so. We also expect firms to comply with the rules as soon as they can, without waiting until 2 April 2025.
Firms must continue to comply with all other relevant rules, including the anti-greenwashing rule.
These temporary measures do not apply to funds using other sustainability-related terms in their names that are not specified above.
The new naming rules are broadly consistent with our pre-SDR guiding principles[7], which firms should be complying with already.
The guiding principles state that a fund that uses sustainability-related terms in its name could be misleading unless the fund pursues ESG/sustainability characteristics, themes or outcomes in a way that is substantive and material to the fund’s objectives, investment policy and strategy.
The new naming rules, for funds that are marketed/sold based on sustainability-related terms but do not have a label, require funds to:
- have sustainability characteristics
- ensure that funds’ names accurately reflect those characteristics
Sustainability characteristics should be material to that product, for example at least 70% of its assets should have sustainability characteristics (see ESG 4.3.6G(1)).
Firms facing difficulty complying with any of the SDR rules or the guiding principles for their out-of-scope funds should talk to their supervisor or usual supervisory contact.
We will continue to maintain our firm engagement, pre-application meetings and support.
Find more support for firms[8]
Fund mergers, wind-ups and terminations
We have received some queries about the authorisation of mergers, wind-ups or terminations before 2 December 2024.
We will take a supportive, proportionate and outcomes-based approach in these circumstances.
Firms with questions can contact their supervisor or usual supervisory contact to discuss on a case-by-case basis.