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Climate finance | 25 January 2023

Response to FCA CP22/20 on Sustainability Disclosure Requirements (SDR) and investment labels
Climate finance
Climate accountability

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Response to FCA CP22/20 on Sustainability Disclosure Requirements (SDR) and investment labels

ClientEarth welcomes that the Financial Conduct Authority (FCA) is proposing to introduce a regime for sustainability disclosures and the labelling of sustainable products. However, the design of the new regime must be enhanced to ensure that it is understandable to consumers and does not inadvertently facilitate or formalise greenwashing. In our response to the FCA’s consultation on this regime, we propose:

1. “Sustainable” label: Products should only be labelled as “sustainable” if they are consistent with international climate goals (including limiting warming to 1.5°C) and other planetary boundaries, and do no significant harm to any environmental or social issues. The FCA’s current proposals would allow products to be labelled as sustainable where they relate to any single environmental or social goal, even where they are not aligned with global climate goals or harm other environmental or social issues.

2. Double materiality: The SDR disclosures (in entity and product sustainability reports) should include a description of the impact that products and firms have on society and the environment (referred to as “double materiality”), not just the financial risks that environmental and social factors pose to firms.

3. Anti-greenwashing rule: We welcome that the FCA is proposing to introduce an anti-greenwashing rule. However, it should be enhanced to expressly require that firms: (1) do not omit or hide important information relevant to any claims they make about sustainability; and (2) must be able to substantiate their claims about sustainability with credible, science-based evidence.

4. Criteria for “sustainable focus” and “sustainable improver”: We propose that the criteria for the sustainable focus and improver labels should be tightened. In particular, products should only be labelled “sustainable improver” where it is credible that they will become more sustainable over time in response to the firm’s actions.

5. Enforcement: The SDR and labelling regime must be underpinned by effective monitoring and enforcement from the FCA. This is particularly important given that firms self-certify labels under the regime, based on intentionality.