UK greenwashing rules set “higher bar” than SFDR, says investor group

FCA, SFDR, A group of investors praised the UK regulator for creating a "higher bar" than the EU around sustainability disclosure rules.

The UK Sustainable Investment and Finance Association (Uksif), whose members manage £19 trillion of assets, said it was "strongly supportive of the approach" by the Financial Conduct Authority (FCA) in the regulator's consultation for the proposed Sustainability Disclosure Requirements (SDR).

SDR is a UK equivalent to the EU Sustainable Finance Disclosure Regulation (SFDR), which has come under criticism in its approach to eradicating greenwashing by the use of labels for investment funds.

Regarding “envisaged implementation issues”, the Uksif consultation response said: “Critically, this includes a higher bar that has been set for funds seeking to make sustainability claims, including the qualifying criteria, which will be important in addressing ‘greenwashing’ risks for clients and consumers and is a positive departure from the arguably looser criteria for the categories set out in the EU’s SFDR and the unclear definition of ‘sustainable investment’ within SFDR’s Article 2(17).”

In addition, Uksif praised the greater flexibility apparent in the FCA’s proposal and how this reflected firms’ different approaches to sustainable investing. Uksif said: “This is in comparison to the relatively homogeneous definition for sustainability carved out in SFDR.”

However, Uksif did say there are areas for the FCA to carefull consider "tweaking", such as how the proposed labels can be applied to asset classes beyond equities.

Ultimately the organisation is pushing for the FCA to learn “the right lessons” from the EU’s experience of implementing SFDR. This includes a focus on “sequencing issues”, with Uksif highlighting the need for the UK to quickly outline its approach to company-level disclosures.

Concerns and criticisms around SFDR implementation have become increasingly apparent across Europe. Recent research by sustainable investing tech provider Clarity AI found nearly a quarter of Article 9 funds were failing the fundamental ‘do no harm’ test.

Findings like this led to the Securities Market and Stakeholder Group urging Esma to reclassify its SFDR labels.

Earlier this week, the group argued there was currently too much overlap between how Article 8 and Article 9 funds were classified.

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