With so many regulatory and voluntary ESG frameworks now in play, we focus on five key events.

Sustainability Disclosure Requirements

Anti-greenwashing rules May 31, 2024 for all UK FCA authorized firms

With the UK FCA‘s consultation on anti-greenwashing guidance closing on January 26, 2024, the turnaround time to apply the proposed anti-greenwashing rules is short (see article FCA gives guidance on the new anti-greenwashing rule). Wider than just disclosures, this extends to images on your website, content of marketing materials, fund documents and other communications and claims etc.

Unlike the other SDRs, the anti-greenwashing rules are not limited to communications with retail clients – they also capture professional and business-to-business communications. This may be the only part of the SDRs that is applicable to certain fund managers (for example AIFMs). Sustainability references must meet the “four Cs”: Correct, Clear, Complete, and Comparisons must be fair and meaningful.

There’s a little more time for the rest of the SDRs, which are also narrower in scope – for example, those opting into and meeting the criteria for the SRD product labels can start to use them from July 31 2024, and the Naming and Marketing Rules apply from December 2, 2024. See also Sustainability disclosure and labelling regime announced by FCA)

Principles for Responsible Investment

Reporting expected between June-Sept 2024

The PRI (Principles for Responsible Investment) announced at the end of 2023 that reporting in 2024 would be voluntary for any signatories who completed 2023 reporting. In practice, we expect to see the vast majority of signatories elect to report in 2024, even if they did report in 2023, to capture additional score from improvements and progress made through 2023.

Beyond reporting, signatories should be aware of two PRI developments: Progression Pathways Initiative and Reporting Equivalency. Progression Pathways would be a new, voluntary framework to help signatories demonstrate their progress on defined ESG pathways – look out for the opportunity to share your views on this with the PRI in the coming weeks.

Reporting Equivalency seeks to simplify PRI reporting for signatories already making certain disclosures such as UK Stewardship Code or Task Force on Climate-related Financial Disclosure (TCFD), minimizing or eliminating duplicate reporting efforts.  

Sustainable Finance Disclosures Regulation

RTS amendments and the future of SFDR

Many managers and funds in scope for SFDR reporting have been through the periodic reporting process at least once by now, and focus is now shifting towards the outcome of the EU Commission’s consultation on the future of SFDR (which closed in December 2023). Will labels be defined and formalised with clear criteria? Will Articles 8 and 9 still exist as concepts? Will we be able to do away with entity level disclosures altogether (hopefully)? Was it all worth it? (see also Is the SFDR heading for the scrap heap?)

The Commission will digest consultation feedback through 2024, with any final proposals not expected until early 2025. In the meantime, we await updates (expected in the next three months) on proposed amendments to regulatory technical standards including new social PAI (Principal Adverse Impacts) indicators, enhancements to DNSH (Do No Significant Harm) disclosures, and potential simplification of pre-contractual and periodic product disclosures.

These amendments, if adopted, could be applied separately to the SFDR review.

Taskforce on Climate-Related Financial Disclosures

June 30, 2024 deadline for UK asset managers >£5 billion ($6.33 billion) AUM

For those in scope, the June 30 deadline is fast approaching, and, in some cases, there is a lot of work still to do. We also see a vast number of managers electing to report in line the TCFD recommendations voluntarily (despite not being required to by regulation), mainly in response to investor request.

Also note that to signal deeper convergence and minimize the reporting burden, TCFD as an organization has disbanded, and handed oversight of the framework to ISSB. Signatories reporting to ISSB S2 (climate requirements) will now no longer need to produce a separate TCFD report.

International Sustainability Standards Board

Navigating new regimes is always a challenge at first but we’re hopeful ISSB will genuinely ease the burden in time. And since nearly everyone is now quite familiar with TCFD (which forms the backbone of ISSB), it shouldn’t be too much of a leap.

We continue to await information on the UK’s plans to adopt and operationalize the ISSB disclosure standards (IFRS S1 General Sustainability-related Disclosures and IFRS S2. Climate-related Disclosures). Timing of adoption may be impacted by the timing of the next general election – with the next government likely tasked with determining final adoption of the ISSB standards.

Where to start with ESG reporting

Whether you are planning to complete your reporting in house, or used outsourced services, there is a lot to do. So where to start:

1. SDR: Review the proposed anti-greenwashing.
2. PRI: Preparation for PRI reporting can begin now.
3. TCFD: Gathering climate metrics and drafting your TCFD report.
4. SFDR: Keep an eye on developments and new rules.
5. ISSB: Keep an eye on adoption timelines.