Sustainability and Responsible Investment

SDR AND AND INVESTMENT LABELS UPDATE

Implementation of SDR and the investment labels continues at pace for firms.

Timing considerations for SDR implementation

The IA and Eversheds Sutherland have published initial industry guidance on timing considerations for SDR implementation. The guidance illustrates applicable timelines to help firms plan by outlining what needs to be prepared for an FCA application, if required, and when. Further IA-Eversheds Sutherland guidance will be produced in the coming months, covering more detailed implementation issues and key and common questions that emerge through the IA SDR

Implementation Forum.

Guidance on the anti-greenwashing rule

The first incoming deadline is the application of the anti-greenwashing rule which comes in to force on 31 May 2024. Despite IA urging the FCA to align implementation date to 2 December 2024 when the naming and marketing rules come into force, the FCA has confirmed that the anti-greenwashing rule is law and will be coming in to force on the planned date. The FCA has clarified on its website that firms subject to the naming and marketing rules for asset managers are not required to meet those additional requirements until 2 December 2024. We are still expecting guidance from the FCA on how firms should apply the anti-greenwashing rule.

Application of SDR to portfolio management

The FCA will be consulting soon on the application of SDR to portfolio management services and has confirmed at the March IA SDR Implementation Forum that the

Further information:

Carol Thomas
Head of Sustainability & Responsible Investment
carol.thomas@theia.org

Flora Tudhope
Policy Lead, Sustainability & Responsible Investment
flora.tudhope@theia.org

Paul Scaping
Public Policy Specialist
paul.scaping@theia.org

IA website hub page can be found here.

application of SDR to pension product is a medium-term ambition.

APPLICATION OF SDR TO OVERSEAS FUNDS

SDR currently does not apply to overseas funds being marketed into the UK and firms with overseas funds cannot voluntarily choose to apply a SDR label to those funds. UK distributors will have to place a notice on overseas funds marketed in the UK to clarify that they are not subject to the UK sustainability investment labelling and disclosure requirements. The application of SDR to overseas funds is a matter for HMT (not the FCA) and, on request from HMT, the IA is gathering member views on whether or not SDR should be applied to those overseas funds being sold to UK investors.

SFDR Review

We recently met with the European Commission to outline key IA positions on the recent SFDR consultation. The European Commission plans to publish in Spring a feedback statement, factually outlining a summary of the over 400 responses received

to the consultation – that feedback statement will not outline any indication on future direction of SFDR. It is clear the European Commission is keenly observing how SDR implementation is going in the UK in order to help develop its own position going forward and we have offered to help facilitate discussions with our members on experiences and lessons learned.

IA/PwC Report on Asset Manager TCFD Implementation

On 7 March, the IA published our joint report with PwC on the key themes seen in the first round of reporting from firms against the FCA's rules on TCFD for asset managers. The report is intended to serve as a useful resource to members reporting for June 2024 and beyond.

The report looks at entity, product, and on-demand reporting, across a selection of asset managers who reported for the first time in 2023 against the FCA's requirements. As well as outlining some of the key challenges faced by asset managers in implementing the FCA's rules, the report also sets out a list of 10 key

Further information:

Carol Thomas
Head of Sustainability & Responsible Investment
carol.thomas@theia.org

Flora Tudhope
Policy Lead, Sustainability & Responsible Investment
flora.tudhope@theia.org

Paul Scaping
Public Policy Specialist
paul.scaping@theia.org

IA website hub page can be found here.

areas for asset managers to consider in their reporting going forward. The IA will also be using this report to inform our ongoing engagement with the FCA.

Carbon and Nature Markets

There has been a recent increase in policy work relating to carbon and nature markets, largely because of increasing activity by policymakers. In March, the IA responded to two consultations focused on carbon markets. IOSCO is consulting on the introduction of a set of advisory good practices for the operation globally of voluntary carbon markets while the UK ETS Authority held a consultation on enhancement the UK’s carbon cap and trade scheme. The Government also reiterated in the Budget that the UK would introduce a Carbon Border Adjustment Mechanism (a carbon import tax) and a consultation on the design of this mechanism was launched at the end of March. The IA’s contribution to all consultations has emphasised the importance of a reliable carbon price signal to support long-term

investment and engagement decisions, while supporting greater international alignment, and due consideration of the potential social consequences of using carbon pricing tools. The IA’s Paul Scaping also gave evidence in March to the UK Parliament Environmental Audit Committee as part of its inquiry into the role of natural capital in the green economy. The evidence session focused on the appropriate metrics and assurance methods required to build confidence in carbon and nature markets.

Green Finance Strategy: Transition Finance Market Review and Net Zero Blended Finance Project

The IA continues to engage with the Government on the delivery of its 2023 Green Finance Strategy. Most recently this has focused on the launch by the City of London Corporation (CoLC) of a call for evidence in support of the Transition Finance Market Review. The Green Finance Strategy 2023 announced that the Government would set up a market-led review to examine how the UK can offer a better market to access financial

Further information:

Carol Thomas
Head of Sustainability & Responsible Investment
carol.thomas@theia.org

Flora Tudhope
Policy Lead, Sustainability & Responsible Investment
flora.tudhope@theia.org

Paul Scaping
Public Policy Specialist
paul.scaping@theia.org

IA website hub page can be found here.

services that facilitate the transition to net zero. The Transition Finance Market Review was launched in January 2024 and will report back to the UK Government in the summer. CoLC is providing secretariat support to this independent review and the call for evidence, to which the IA will respond, will inform its work programme and eventual recommendations. The Government also recently stated that a Net Zero Blended Finance Project (funding for which was announced in November 2023) will aim to improve the capacity and expertise of the Government to explore innovative blended finance approaches in mobilising additional private sector investment to support the UK’s transition to net zero. The IA has met with the officials responsible for this project to discuss how we can support it.

Making Markets: the City’s Role in Industrial Strategy

An IA-sponsored independent thinktank report proposing a new partnership between the public and private sectors to finance the transition to net zero was launched at a parliamentary reception in February. The

report, published by IPPR and the Green Finance Institute and titled ‘Making markets: the City’s role in industrial strategy’, argues that the financial sector can play a key role in supporting the UK's industrial strategy and green recovery, by aligning its activities with national climate targets and providing innovative financial solutions. The report also calls for more public investment to catalyse private capital and reduce the risks and costs of green projects. The report launch included cross-party speeches from Treasury Minister Gareth Davies and Shadow Treasury Minister Tulip Siddiq. Following publication of the report, we will continue engagement with the parties and officials in preparation for the post-election period.

FRC Launches Market Study on UK Sustainability Assurance Market

As part of its work to promote high-quality corporate reporting and governance, the FRC announced on 21 March 2024 that it will conduct a market study on sustainability assurance services in the UK. The study aims to assess the effectiveness, quality and

Further information:

Carol Thomas
Head of Sustainability & Responsible Investment
carol.thomas@theia.org

Flora Tudhope
Policy Lead, Sustainability & Responsible Investment
flora.tudhope@theia.org

Paul Scaping
Public Policy Specialist
paul.scaping@theia.org

IA website hub page can be found here.

competition of this rapidly growing market, which provides assurance over companies' sustainability reporting.

The FRC's market study will examine the following key areas:

choice, quality and competition in the sustainability assurance market,
capacity constraints and barriers to entry or expansion,
potential impacts from changing international regulations,
any interplay between the sustainability assurance and statutory audit markets

The FRC intends to engage with a wide range of stakeholders and has also published a set of questions for consultation, which are open for response until 13 June 2024. The FRC expects to publish its findings and recommendations by the end of 2024.

We have already had engagements with members on sustainability assurance, including the scope of the information, extent of the assurance (reasonable vs limited), and

the importance of interoperability amongst global assurance standards and compatibility with the ISSB reporting standards. We outlined this in our response to the IAASB International Standard on Sustainability Assurance in December 2023. Building upon this work, we will be producing a consultation response to the FRC market study on the UK sustainability assurance market and are in the early stages of engaging with members on the emerging themes and concerns in the UK sustainability assurance market.

Transition Plan Taskforce consultation on asset manager guidance

The IA has responded to the Transition Plan Taskforce's (TPT) consultation on Asset Manager Sector Guidance. The TPT published this guidance to assist investment managers in interpreting its previously published Disclosure Framework. The guidance was published as part of a package of seven sector-specific documents intended to help preparers to interpret the Disclosure Framework for use in their sector. The guidance will now be updated ahead of the

Further information:

Carol Thomas
Head of Sustainability & Responsible Investment
carol.thomas@theia.org

Flora Tudhope
Policy Lead, Sustainability & Responsible Investment
flora.tudhope@theia.org

Paul Scaping
Public Policy Specialist
paul.scaping@theia.org

IA website hub page can be found here.

end of the TPT's remit in February. The response is available on the IA’s website.

Further information:

Carol Thomas
Head of Sustainability & Responsible Investment
carol.thomas@theia.org

Flora Tudhope
Policy Lead, Sustainability & Responsible Investment
flora.tudhope@theia.org

Paul Scaping
Public Policy Specialist
paul.scaping@theia.org

IA website hub page can be found here.