UK extends deadline for funds using ‘sustainable’ names to comply

UK asset managers have been granted an extension to comply with regulations on the use of sustainable or green names for investment funds, as part of a regulatory crackdown on greenwashing across the financial sector. The Financial Conduct Authority’s (FCA) naming and marketing rules under its wider package of Sustainability Disclosure Requirements (SDR) restricts the use of sustainability-related claims in the marketing and names of investment products that do not intend to use one of four new sustainability labels.

While the naming and marketing element of the SDR is due to come into force on 2 December 2024, firms have been offered “temporary flexibility” to comply until 2 April 2025.

Other elements of the SDR are already live, with the anti-greenwashing rule applying to all regulated financial firms in place since 31 May 2024, and sustainability investment labels for products offered by UK-based investment funds in place since 31 July 2024.

The FCA said it has seen “a strong pipeline” of applications from funds to use the new labels – Sustainability Impact, Sustainability Focus, Sustainability Improvers and Sustainability Mixed Goals – but that “it has become clear it has taken longer than expected” for firms that need to change the names of their products to ensure compliance or that want to meet higher standards and use an investment label.

As a result, it will extend the period to comply with naming and marketing rules for investment funds where an application to amend disclosures has been submitted by 1 October 2024 or where the firm is currently using a ‘sustainable’ term in the fund’s name and intends to use one of the four labels or needs to change the name.

Under the rules, funds marketed using sustainability-related terms but that do not have one of the four labels should have material sustainability characteristics equivalent to at least 70% of its assets and ensure that funds’ names are an accurate representation.

“The guiding principles state that a fund that uses sustainability-related terms in its name could be misleading unless the fund pursues ESG/sustainability characteristics, themes or outcomes in a way that is substantive and material to the fund’s objectives, investment policy and strategy,” the FCA said.