Sustainability Disclosure Requirements and Investment Label
The UK Financial Conduct Authority (FCA) releases Sustainability Disclosure Requirements and investment label disclosure examples, aiming to provide asset managers with guidance on product sustainability disclosure and prepare for applying for investment labels.
The Sustainability Disclosure Requirements and investment label system officially comes into effect in December 2024, and the UK FCA has provided asset managers with a six-month buffer period to understand and apply the rules.
Related Post: UK FCA Issues Sustainability Disclosure Requirements for Investment Products
Sustainability Focus Label Disclosure Examples
The Sustainability Focus label is an important category in investment labels, which requires investment managers and investment products to meet the following requirements:
- Having clear and measurable sustainable goals in investment objectives.
- Investment managers must link the sustainable goals of their products with positive environmental and social outcomes.
- The investment direction of the product and the sustainable characteristics of the asset.
- The investment manager monitors the policies and processes of product sustainability goals, where 70% of the product’s funds need to be invested in sustainability goals, and all assets must not conflict with sustainability goals. The investment manager also discloses key performance indicators that measure whether the product achieves sustainable goals.
The UK FCA provides three cases related to Sustainability Focus label, and the disclosures of one case are as follows:
Fund Objective
The fund invests in companies that provide the following solutions to address human health and well-being challenges:
- Poverty & Hunger.
- Health and Medicine.
- Water, Sanitation & Clean Energy.
- Life Below Water & Life on Land.
Asset Allocation
X% of the income from fund assets comes from activities aimed at achieving the United Nations Sustainable Development Goals:
- Poverty & Hunger: United Nations Sustainable Development Goal 2.
- Health and Medicine: United Nations Sustainable Development Goal 3.
- Water, Sanitation & Clean Energy: United Nations Sustainable Development Goal 6.
- Life Below Water & Life on Land: United Nations Sustainable Development Goal 14.
Based on internal research, the investment manager believes that the company’s business with a revenue of X% is consistent with the United Nations Sustainable Development Goals and can achieve performance in accordance with the Sustainable Development Goals.
Investment Performance
The investment manager will monitor asset income consistent with United Nations Sustainable Development Goals 2, 3, 6, and 14 in order to monitor the effectiveness of the fund’s objectives. The investment manager will release the following indicators:
- The total value of the investment portfolio that meets each Sustainable Development Goal.
- Asset income consistent with each Sustainable Development Goal.
Sustainability Improver Label Disclosure Examples
The Sustainability Improver label is an important category in investment labels, which requires investment managers and investment products to meet the following requirements:
- Having clear and measurable sustainable goals in investment objectives.
- Investment managers must link the sustainable goals of their products with positive environmental and social outcomes.
- The investment direction of the product and the sustainable characteristics of the asset.
- The short-term and medium-term ESG schedule of the product. Investment managers should have evidence to prove that the assets invested by the fund may meet sustainable standards.
- The investment manager monitors the policies and processes of product sustainability goals, where 70% of the product’s funds need to be invested in sustainability goals, and all assets must not conflict with sustainability goals. The investment manager also discloses key performance indicators to measure whether the product achieves sustainable goals.
The UK FCA provides three cases related to Sustainability Improver label, and the disclosures of one case are as follows:
Fund Objective
The fund invests in assets that reduce carbon emissions in order to comply with the Paris Agreement, which can mitigate the impact of climate change, improve public health, provide green employment, enhance corporate reputation, and support regulatory compliance and risk management.
Asset Allocation
The assets invested by the fund must commit to achieving net zero emissions, with an annual reduction of 7% for Scope 1 and Scope 2 data. This data comes from a document released by the Intergovernmental Panel on Climate Change (IPCC), which states that in order to achieve a 45% reduction in carbon emissions by 2030 and net zero by 2050, carbon intensity needs to be reduced by 7% annually.
Investment Performance
- Short term goal: Reduce Scope 1 and Scope 2 data by 7% annually.
- Mid term goal: Reduce Scope 1 and Scope 2 data by 50% by 2030.
- Long term goal: Reduce Scope 1 and Scope 2 data by 50% by 2050.
The fund did not consider Scope 3 because there is insufficient data in the investment portfolio, and ignoring Scope 3 may result in incomplete or inaccurate carbon footprint assessments. The investment manager will continue to analyze the availability of this data in order to incorporate Scope 3 into key performance indicators where feasible.
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