New Year, New ESG Labels: A Fresh Start to Label Your Sustainability Success!

Darren Mascarenhas & Si Mathavan

Darren Mascarenhas & Si Mathavan

At the end of 2023 the FCA delivered an early Christmas present to those in the asset management and sustainable finance sectors, by announcing a package of measures (via PS23/16) to help consumers navigate the market for sustainable investment products. Their aim was to improve trust and transparency as firms and consumers move to a more sustainable future. It follows publication on 16 November 2023 of its findings from its supervisory work which considered how Authorised Fund Managers comply with existing regulatory requirements and expectations on the design, delivery, and disclosure of Environmental, Social and Governance (ESG) and sustainable investment funds. 

The policy statement on Sustainability Disclosure Requirements (SDR) and investment labels had been expected for a while but was delayed by the FCA to give them more time to consider the feedback they received on such an important topic. It also gave them time to reflect on the outcome of the supervisory work undertaken, which identified several areas for improvement, including sustainability objectives, stewardship and disclosures. At the same time, they also published their guidance for consultation on the anti-greenwashing rules (GC23/3).

In this article we aim to explore some of the key themes coming out of PS23/16 that firms need to consider as they navigate the change.

Who is in scope and out of scope?

All firms in the industry, except portfolio managers will be caught by the new SDR rules. The FCA will be consulting on the impact of the SDRs on portfolio managers in due course. Overseas funds (like Irish funds) are currently excluded, however this might change in the future. The FCA has also indicated that they will be working on proposals for other products like pensions and insurance-based products, but these are not expected imminently.

The Anti-greenwashing rules (AGR)

The AGR set out in GC23/3 applies to all FCA authorised firms who make sustainability related claims about their products and services, so will impact numerous firms across the financial services sector. It comes into force on 31 May 2024 and ensures that any reference to 'E' or 'S' characteristics when communicating with investors must be consistent with the sustainability characteristics of that product or service and be clear, fair and not misleading. The AGR rules applies to all communications about financial products or services which refer to environmental and/or, sustainability characteristics.

Sustainability Investments Labels 

Sustainability FocusSustainability ImproversSustainability ImpactSustainability Mixed Goals
Invests at least 70% in assets that are environmentally and/or socially sustainable. Invests at least 70% in assets which potentially improve environmental and/or social sustainability over time.  Invests at least 70% in assets and achieves a pre-defined positive and measurable impact.Invests at least 70% in assets in accordance with combination of sustainability objectives for other labels.
General qualifying criteria which apply to all labels:
  • Sustainability objective – to improve or pursue positive environmental and/or social outcomes as part of their investment objectives. 
  • Investment policy and strategy – at least 70% of the product’s assets must be invested in accordance with its stated sustainability objective and reference to “a robust, evidence-based standard”.
  • KPIs – Firms should identify the appropriate KPIs and measure themselves against the sustainability objective.
  • Resources and governance – ensure that there is appropriate resources, governance, and organisational arrangements to support and deliver the sustainability objective.
  • Stewardship – identify and disclose the stewardship strategy needed to support the delivery of the sustainability objective.

Naming and marketing rules

While this is already evident in the EU, the FCA expects firms by 2 December 2024 to ensure that sustainability terms in product names and marketing documents are backed by some substance and are not mere greenwashing. The FCA has also stated the product must have sustainability characteristics and the product names must accurately reflect those characteristics, but the terms like ‘sustainable’, ‘sustainability’, ‘impact’ and any variation of those terms must not be used. In relation to marketing, the FCA wants consistency between disclosures and statements as those used in the name of a product.


The PS outlines a tiered approach to disclosures with the aim of providing accessible information to retail investors and further details to those who want it by proposing the following disclosures:

  • Consumer-facing disclosures – a new standalone document, that sits alongside other documents that provide key investor information, which summarises the product’s key sustainability characteristics and helps consumers compare similar products.
  • Product-level disclosures – more detailed sustainability information than the consumer-facing disclosures, presented in the fund prospectus, prior information document, ‘Part A’ of a sustainability product report, or ‘Part B’ of a sustainability product report.
  • Entity-level disclosures - asset managers with AUM of >£5bn must produce disclosures on how they are managing sustainability risks and opportunities in a ‘sustainability entity report’ building on the TCFD structure, requiring disclosures on governance, strategy, risk management, and metrics and targets.


The FCA has proposed that Distributors (such as financial advisers and platforms) must ensure the labels and consumer-facing disclosures are made available to retail investors and place a prominent notice on overseas products (mainly to highlight that the product it is not subject to the UK labelling and disclosure requirements).


Below is the summary of the implementation timeline:

How can we help?

As you can see from the above, the FCA has set out a lot of recommendations in PS23/16 and all regulated firms should look to how these are likely to impact them. Implementing the recommendations will take a considerable time as firms start to think about their sustainability credentials, in-scope products, sustainability objectives, outcomes and the disclosures.

We can help you prepare for the new requirements and support you through the process by undertaking a gap analysis against the new rules or through the provision of independent assurance on any aspect of ESG, which can be tailored to your needs.

If you would like to talk to us about your plans or need help with any aspect implementing PS23/16, please do not hesitate to get in touch with Si Mathavan, Darren Mascarenhas, Mark Stewart or your usual Johnston Carmichael adviser.

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