Investors around the world trust the financial services industry in the United Kingdom to guard and grow their money. That’s why we are a world leading centre for finance and Those investors’ priorities have been changing. They still want returns, of course , but with global assets under management in ESG-orientated funds expected to increase to $34trn by 2026, there is clearly demand for investments with a positive environmental or Our research shows over 80% of consumers want their money to do good, as well as deliver a return. T o maintain and grow our position as a global investment hub we need to keep pace with change. That means offering products consumers want. The transition to a sustainable future brings with it opportunities which can be captured by providing for the financial needs of this journey. These opportunities should be available for retail consumers as well as financial institutions. However, as a regulator with a consumer protection mandate, trust is vital. As it stands, 7 in 10 investors say they think that many investments that claim to be sustainable actually aren’t. 1 So, our aim with this Sustainability Disclosure Requirements (SDR) and investment labels regime is simple – financial products that are marketed as sustainable should do as they claim and have the evidence to back it up. The regime will support consumers in navigating their investments with trust that the products they are buying do as they say they will. The disclosure requirements will help to overcome information asymmetries, and the anti-greenwashing rule will apply to all We consulted widely, including convening a working group . We listened and, where we needed to, made changes, including creating a new ‘mixed goals’ label, ensuring funds that invest across sustainable strategies are recognisable to consumers. We’ve also amended the naming and marketing rules to reach a balance that is proportionate for firms without compromising consumer protection. The package of measures has consumers at its heart and was tested with over 15000 At every stage of forming these rules we have sought to create international interoperability and included in the Policy Statement is a mapping of our rules to those of We want to work with other jurisdictions to demonstrate that it is possible to introduce rules that protect consumers but also help the market to grow. We’ll continue to 1 Research conducted by Boring Money, and compiled in their Sustainable Investing Report 2022. In a survey of 1414 investors, 70% of participants responded that they ‘Strongly agree’ or ‘T end to agree’ with the statement that ‘Lots of investments that claim to be sustainable actually aren’t’ . engage with our counterparts across the globe as they develop similar rules, as well as continuing to engage with HMT as it considers its approach to overseas funds. The FCA wants to see a level playing field for all firms operating across the market to maximise the benefits of the regime for consumers. Raising the bar with these new rules is a crucial cornerstone of our ESG strategy, and furthers the objectives set for us by to protect consumers, enhance market integrity, support competition in financial services , and our secondary objective to support UK competitiveness and economic growth. Our rules also support the Government’s ambition for whole-of-economy Sustainability Disclosure Requirements and the UK’s target to reach net zero by 2050 . The FCA remains committed to supporting firms and consumers as we embark on this key step in supporting the UK to a more sustainable future. Better industry standards will improve market integrity and consolidate the reputation of the UK as a leading international hub for sustainable finance, helping to attract those looking for genuine, credible sustainability-oriented investment opportunities. Executive Director of Consumers and Competition and Director of Environmental, Social and Governance

1.1 This Policy Statement (PS) contains our final rules and guidance to improve trust and transparency to the market for sustainable investment products. It follows our consultation on Sustainability Disclosure Requirements (SDR) and investment labels (CP22/20), issued in October 2022. 1.2 There is significant consumer interest in sustainable investment. Our Financial Lives survey found that 81% of adults surveyed would like the way their money is invested to do some good as well as provide a financial return. 76% would like to invest in a way that protects the environment. And 7 4% would like to invest in a way that has a positive 1.3 Consumers find it difficult to identify products that meet their sustainability preferences. This is not helped by a lack of standardised, accessible information and the use of unclear or confusing terms. For example, terms such as ‘ESG (Environmental, Social and Governance)’, ‘responsible’, ‘green’ or ‘sustainable’ are open to interpretation and are often used loosely and interchangeably. 1.4 Financial firms and other companies are also highly engaged with the vast majority of UK listed firms having voluntarily set net zero emissions targets, and the value of ESG-oriented assets under management (AUM) growing at pace. Firms and industry groups have expressed support that the market needs guardrails as it develops. This will help to ensure the market remains trusted and credible . 1.5 We have been concerned that some firms may be making misleading or exaggerated sustainability-related claims about their investment products. 1.6 So we are introducing a package of measures which aim to inform and protect consumers and improve trust in the market for sustainable investments. The regime should help underpin the UK’s position as a world-leading competitive centre for asset management and sustainable finance. 1.7 The measures include an anti-greenwashing rule for all authorised firms, 4 investment labels, and new rules and guidance for firms marketing investment funds on the basis of their sustainability characteristics. 1.8 The new rules will help to further each of the FCA’s objectives, as set by Parliament. The criteria that need to be met for use of the labels and the rules around the naming and marketing of products using sustainability terms should help enhance market integrity.
Clear and accessible information and labels for consumers should enhance their protection as they navigate their investments. And introducing a clear framework for firms to assess products consistently and be more transparent about the sustainability standards they are using should help facilitate better competition between

1.9 A summary of the regime is given in Chapter 2 including the main changes we have made to it . The wider context is outlined in Chapter 3 and we also set out the next steps 1.10 Chapter 4 explains the anti-greenwashing rule. We are also consulting today on new general guidance to provide more detail on what this rule means. 1.11 The labels and the criteria investment funds must meet to qualify for a label are described in Chapters 5 and 6. 1.12 Chapter 7 explains how firms can name and market their products using sustainability- related terms and Chapter 8 explains the information that must be provided. 1.13 Rules for distributors are contained in Chapter 9. 1.14 Chapter 10 explains the scope of the regime. 1.15 Chapter 11 sets out operational considerations and the implementation timeline. 1.16 We provide an updated cost benefit analysis in Chapter 12. 1.17 Annexes 1 – 3 provide the principles supporting the regime, a stand-alone overview of the full regime (with examples) , and international compatibility . 2.1 We consulted on a package of measures which together aim to inform and protect consumers, enhance competition, and improve trust in the market for sustainable investment products. We have carefully considered the extensive consultation feedback, engaged with a broad range of stakeholders and carried out further consumer research to inform the final regime. An anti-greenwashing rule for all FCA authorised firms to reinforce that sustainability-related claims must be fair, clear and not misleading. We are also consulting on supporting guidance Naming and marketing rules for investment products, to ensure the use of sustainability-related terms is accurate Four labels to help consumers navigate the investment product landscape and enhance consumer trust Consumer-facing information to provide consumers with better, more accessible information to help them understand the key sustainability features of a product Detailed information in pre-contractual, ongoing product -level, and entity-level disclosures, targeted at institutional investors and consumers seeking more information Requirements for distributors to ensure that product-level information (including the labels) is made available to consumers

2.2 Our anti-greenwashing rule applies to all FCA-authorised firms who make sustainability- related claims about their products and services. 2.3 The investment labels, disclosure, and naming and marketing rules apply to UK asset managers. We have also introduced targeted rules for the distributors of investment products to retail investors in the UK. 2.4 The rules do not apply to portfolio management products and services yet. We will consult on a wider application of these rules soon. Our Next Steps section in Chapter 3 2.5 Many of our rules have been developed for retail investors, referred to as ‘consumers’. However, part of the regime is also aimed at professional or institutional investors who we call ‘clients’. We refer to ‘clients’ more broadly in the instrument in Appendix 1 to cover both retail and institutional investors. 2.6 This PS will also be of interest • industry groups and trade bodies • consumer groups, consumer advocates and consumers • domestic and international policymakers and other regulatory bodies • industry experts and commentators 2.7 The consultation closed in January 2023. It built on views contained in Discussion Paper (DP) 21/4 on Sustainability Disclosure Requirements (SDR) and investment labels and 2.8 The consultation contained proposals informed by an expert advisory group made up of key financial market stakeholders and subject matter experts ( Disclosures and Labels Advisory Group (DLAG) ). We would like to thank the DLAG members for their expert 2.9 We would also like to thank stakeholders who responded to our consultation for their challenge, support, and detailed and thoughtful feedback. Receiving feedback from a broad range of stakeholders has enabled us to build a practical and proportionate regime that protects consumers and take s account of the impacts of costs and benefits on consumers and all sizes of firms. 2.10 In our update from March 2023 , we said that stakeholders were broadly supportive of our proposals and outcomes. At the same time, respondents offered constructive feedback on specific elements of the package and drew out some practical challenges. 2.11 Our final measures have been informed • The findings from our multi-firm review on the application of the Guiding Principles • Careful consideration and analysis of the 240 consultation responses • Extensive engagement with key domestic and international stakeholders such as regulators, Government, industry, DLAG members, consumer groups and others – including through meetings and roundtable discussions • Feedback from the T reasury Sub-Committee’s inquiry on sustainability disclosure requirements • Further testing with consumers and with firms • Engagement with FCA ’s independent statutory panels – including the Financial Services Consumer Panel, the Practitioner Panel and the Smaller Business 2.12 We have summarised the broad feedback to our consultation and set out the main changes we have made in response in Ta b l e 1. 2.13 Some of the feedback received asked for additional guidance on the anti-greenwashing rule. Alongside this PS, we are therefore consulting on new guidance. 2.14 We also conducted further consumer research on our revised proposals. We have published the findings of this research today. 2.15 We also received feedback on the importance of ensuring compatibility with other regimes, most notably the Sustainable Finance Disclosure Regulation (SFDR) in the European Union (EU). We continue to engage with counterparts in the EU and other jurisdictions to encourage interoperability and compatibility as they consider their 2.16 We have included a revised mapping to the SFDR requirements in Annex 3 to help firms that will face obligations under both regimes. We note the European Commission’s ongoing review of the SFDR, and its consultation published in September 2023.
Among the Commission’s consultation proposals is consideration of a labelling regime to help consumers navigate the market. As our regime is among the first to consider introducing investment labels, we stand ready to work with the EU authorities on this important issue. We are also engaged with developments in other international jurisdictions, and will continue to do so. What we are changing in response to the consultation Summary of feedback and our response responded to it. The following chapters provide more detail on these and address

proposals Stakeholder feedback and our response Naming and marketing Stakeholders raised concerns that our proposals for the use of sustainability-related terms were too restrictive and asked for rules that enable firms to communicate important and factual information about products, so that consumers can continue to navigate to We have updated the rules to allow for the use of most sustainability- related terms if certain conditions are met. Blended strategies Stakeholders asked us to accommodate funds that invest in a blend of strategies within the regime. We have introduced a fourth label, ‘Sustainability Mixed Goals’, for funds that invest across different sustainability objectives and strategies aligned with the other categories. Improvers category Stakeholders asked us to clarify stewardship expectations and to avoid the category becoming a ‘catch-all’. We have made some amendments and clarifications to acknowledge that stewardship comes in various forms, clarify that firms are not required to demonstrate a causal link between stewardship and assets’ improvements , and clarified our expectations for products that may qualify for this label. Focus category Stakeholders asked us to allow internal frameworks to be used for the ‘credible standard’ that the product’s assets must meet, and to clarify if internal processes can be used for independent assessment. We have added clarification that internal frameworks can be used and independent assessment can be carried out either by a third party or via a firm’s internal processes. Impact category Stakeholders asked us to acknowledge the scope for impact investing in public markets and align our proposals more closely with We encourage firms to use industry frameworks to the extent relevant for their products’ sustainability objective. We have clarified that, as long as other criteria are met, investments in public markets can qualify for use of the label, in line with industry

proposals Stakeholder feedback and our response We were asked to move away from primary and secondary channels for investor contribution, and to avoid using ‘sustainable’ in the names of labels, particularly for ‘improvers’. We also received feedback on the names of the labels. The primary and secondary channels for investor contribution were We have amended the names of the labels from ‘sustainable’ to ‘sustainability’, to reflect that some assets are on a journey to becoming sustainable, and to avoid consumers getting the impression that all labelled funds are invested in assets that are Disclosures Respondents asked us to incorporate sustainability information into existing product disclosures, and to not require a consumer -facing We have retained the requirement for separate consumer-facing disclosures rather than for this information to be incorporated into existing disclosures. This is in line with consumer research findings. We will only require disclosures for products with labels or using Scope We were asked to clarify the approach to overseas funds. We were also asked to consider alternative approaches to applying the labelling regime to portfolio managers. We will continue to work with His Majesty’s Treasury (HMT) on their We will consult on an alternative approach to applying the regime to all types of portfolio managers. Implementation times We received mixed feedback on operational considerations and implementation dates for the rules. We have set out a new timeline for implementation below, this takes account of the impact of change on all sizes of firm. 2.18 The rules and guidance come into force on the following dates : 2 December 2024 2 December 2025 2 December 2026 How it links to our objectives 2.19 Our measures are compatible with and advance our strategic objective to ensure that markets function well by increasing transparency on the sustainability goals and features of products and firms, and by reducing the risk of harm from greenwashing. 2.20 Our proposals are also intended to advance the FCA’s operational • Investment labels, better consumer information, rules for distributors, and the naming and marketing rules should help to protect consumers by equipping them with information to navigate the market and identify products that meet their needs and preferences, as well as reducing the risk of greenwashing • The disclosure requirements should help the flow of consistent information along the investment chain, increasing transparency in the market and furthering our objective to promote market integrity • The labels and consumer-facing disclosures should help consumers to compare products more effectively and efficiently, potentially leading to greater competition among similar products (where consumers are comparing like-for-like), in line with our objective to promote competition in the interests of consumers 2.21 The Financial Services and Markets Act 2023 (FSMA) gives the FCA a secondary objective to facilitate the international competitiveness of the UK economy (including, in particular, the financial services sector), and its medium to long-term growth, subject to aligning with relevant international standards. 2.22 These rules and guidance are consistent with, and advance, our secondary competitiveness and growth objective by ensuring that the UK market for sustainable investment products is one of the most transparent and efficient. The measures should enable investors to have better confidence in identifying sustainable investment products and making informed purchases. Better industry standards should improve integrity and help to build on the UK’s existing reputation and leading international position in the sustainable finance market. Attracting sustainable investments that support a thriving economy is a key element to promoting innovation, which is paramount to increasing the productivity of the UK economy.
2.23 In developing these measures, we have considered the regulatory principle in FSMA that, where relevant to the exercise of our functions, we contribute towards achieving the UK’s net zero emissions target and the Chancellor’s latest remit letter where we were asked to have regard to the Government’s ambitions for the provision of sustainable finance and its net zero emissions target. Our proposals are intended to help consumers navigate the investment market and better understand which firms and investment products are aligned with the transition to a more sustainable economy. Wider context, considerations and Wider context of this policy statement 3.1 The measures we consulted on build on existing requirements and expectations for firms – including our Guiding Principles for the design, delivery and disclosure of ESG and sustainable investment funds, published as a Dear Chair letter in July 2021. We carried out a multi-firm review of the Guiding Principles and published the findings earlier this month. We found that, while most authorised fund managers have made efforts to comply with the rules, there is room for improvement to help consumers to navigate the market and make informed decisions. 3.2 In its Roadmap to Sustainable Investing published in October 2021, the Government set out its long-term strategy to ensure investors and consumers can access the information they need to make informed capital allocation decisions, in line with their sustainability preferences or goals. 3.3 Central to this is the Government’s plan for an economy-wide SDR regime, which the Government elaborated on in its 2023 Green Finance Strategy . The economy-wide SDR regime aims to build on leading global practice and standards and to introduce a framework to facilitate and streamline the flow of robust and useful information between corporates, consumers, and investors and capital markets. 3.4 Our new SDR and labelling rules are a key component of that regime, which also includes the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards, transition plan disclosures, developing a UK Green T axonomy and consideration of nature -related disclosures. 3.5 We are a strong advocate of the development of international corporate reporting standards on sustainability. With the International Organization of Securities Commissions (IOSCO), we have supported the work of the IFRS Foundation since the International Sustainability Standards Board (ISSB) was first considered. 3.6 The ISSB launched its first sustainability-related reporting standards in June 2023. We refer to the ISSB’s Sustainability Disclosure Standard (IFRS S1) as a helpful reference point for asset managers in scope of these rules and guidance to determine the content of their entity-level disclosures. 3.7 We intend to consult in 2024 on updating our T askforce on Climate-Related Financial Disclosures (TCFD) aligned disclosure rules for listed companies to reference the ISSB’s standards. The ISSB’s global baseline standards will provide the internationally consistent and comparable sustainability disclosures that asset managers need to support their decision-making and to support the flow of information for their own 3.8 We have taken account of other international initiatives, such as th e Recommendations on Sustainability-Related Practices, Policies, Procedures and Disclosure in Asset Management, published by IOSCO in November 2021. 3.9 Our new rules are consistent with the Consumer Duty. While not all firms in scope of our regime are in scope of the Duty, we expect them to apply our rules and guidance keeping the aim of the Duty in mind. This means firms • act in good faith to deliver sustainability-related products and services, taking into account the reasonable expectations of retail customers • avoid causing foreseeable harm , including harm caused through greenwashing and buying unsuitable products • enable and support retail customers to pursue their financial objectives , including where customers have sustainability-related needs and preferences as part of their investment objectives 3.10 Our proposals are intended to advance the FCA’s strategic objective to ensure relevant markets function well, as well as the FCA’s operational objectives as set out in Chapter 2. other stakeholders will need to take, and how these will support our target outcomes. Greenwashing is minimised and consumers are protected from associated harm Link to consumer protection objective Increased provision of standardised sustainability information along the investment chain Link to market integrity objective Consumers use labels and disclosures to more effectively navigate the market and make informed Supervising and enforcing the regime 3.12 If a firm chooses to label a product, the firm remains responsible for its classification and ensuring the label is appropriate. The FCA’s Fund Authorisation team will review, and may challenge, the application of any new fund submitted for authorisation, or amendments to existing funds. However, this will not be an approval of the label. 3.13 We will apply our usual supervisory and enforcement approaches to this regime. We will respond to compliance issues when they arise and act if we have intelligence that indicates a firm may not be meeting the requirements. We may take enforcement action where we have reason to believe that serious misconduct may have taken place. 3.14 We will continue to provide support to industry on implementation of the regime through stakeholder engagement, including webinars and events. 3.15 Ta b l e 2 below sets out what we will do to assess the effectiveness of our rules and the outcomes. We refer to the mechanisms set out in our causal chain above. Outcome Mechanism How will we measure success? We expect to monitor uptake of labels and we will supervise the use of labels, including challenging inappropriate use of labels at the Fund Authorisations We will use available market intelligence that indicates firms may be in breach of We will assess the usefulness of labels and disclosures to consumers through our Financial Lives Survey, other sources of consumer research representative groups such as the Financial Services Consumer Panel, FCA Consumer Network, Good With greenwashing from a range of sources.
This includes complaints to the Supervision Hub, intelligence gathered on quality of applications to Fund Authorisations and broader supervisory 3.16 We will also carry out a post -implementation review after 3 years to assess if our intervention has met its intended outcomes, identify implementation issues and potential unintended consequences, and assess compliance with the rule. Equality and diversity considerations 3.17 We have considered the equality and diversity issues that may arise from the final rules and guidance in this Policy Statement. 3.18 We do not consider that the proposals materially impact any of the groups with protected characteristics under the Equality Act 2010. 3.19 If you wish to respond to our consultation on anti-greenwashing guidance published today please do so by 26 January 2024. 3.20 The rules and guidance outlined in this PS are a starting point. We intend to expand and evolve the regime in future, including in the following • Portfolio management. We received feedback that our proposed approach for portfolio management would not be suitable, particularly as most portfolios are diversified and unlikely to invest only in UK funds with labels. Among the suggestions to address the matters raised were requests to allow portfolio managers to assess the assets within their portfolio against the criteria for labels – to follow a similar approach for portfolio management as was proposed for funds. We will consult on proposals to follow a similar approach for portfolio management, with a focus on where portfolio management is undertaken for UK retail clients, including managed portfolios and discretionary wealth management services, in • Overseas funds. Our regime applies to UK funds, and overseas funds are not in scope. We want consumers to have access to transparent and consistent information to support their trust and understanding of the sustainability credentials of all products marketed into the UK. T o support a level playing field in this cross-border industry, promote competition and the competitiveness of UK firms and the asset management sector , we also want all firms marketing their products in the UK to be subject to the same broad requirements. Our view was supported by several respondents to our consultation. We will continue working with HMT to understand the options for extending the regime to overseas recognised funds, including those marketing under the Overseas Funds Regime . The extension of SDR to overseas funds is a matter for HMT . • Pension and other investment products. In the medium term, we will consider extending the regime to pension products, as we recognise that the potential harms we are seeking to address with this regime may also arise with these products. Responses to the discussion chapter of our consultation paper broadly supported this. We thank respondents for their feedback and will provide a • Financial advisers. Financial advisers have an important role to play in supporting consumers and the choices they make. However , we are aware that not all advisers feel comfortable talking to clients about sustainability. We therefore plan to set up an independent working group for the advice industry to work together to build on existing capabilities in sustainable finance, including how the SDR and labels • Disclosures. We intend to build on our disclosure requirements over time in line with UK and international developments. This includes updating our guidance on transition plan disclosures, drawing on the outputs of the Government’s T ransition Plan T askforce (TPT). Where appropriate, we will also consider updating product- level disclosures requirements once the UK Green T axonomy is in use, and product and entity-level disclosure requirements in line with future ISSB standards. 3.21 We will also continue to engage with our international counterparts to encourage interoperability and compatibility as they consider their sustainability regimes. 3.22 We will run a series of webinars and events to help firms implement the rules. We will continue to update our website with further information as needed. 3.23 We have provided consumer information on our labels on our website and will work with 3.24 More information on the principles behind the regime and a high -level map of product types – which will be useful to other international regulators and firms – can be found in 3.25 All authorised firms • Prepare for the new anti-greenwashing rule if they make claims about the sustainability characteristics of their products or services, to ensure sustainability claims are fair , clear and not misleading • Read our accompanying consultation on further guidance to the anti- 3.26 In addition UK asset managers should • Decide whether to label products that aim to achieve positive sustainability outcomes, if they meet the qualifying criteria. • Familiarise themselves with our requirements (summarised in Annex 2 and set out in full in Appendix 1) and prepare to meet the relevant requirements in the implementation timeframes. This includes general requirements for use of the label (including notification to the FCA, publication), qualifying criteria, naming and marketing, disclosures, and ongoing requirements. 3.27 All distributors • Prepare to make the labels and consumer-facing disclosures available to retail investors, and to keep them up to date following changes made by the firm • Where relevant, prepare to add a notice on overseas funds to inform consumers that they are not subject to the regime 3.28 In each of the following Chapters we describe the feedback we received in response to questions asked in our consultation. We describe feedback we have received and takeaways that will form part of our regime. 3.29 We refer to ‘products’ throughout the PS but note that the rules currently only apply to the funds outlined in Appendix 1. We also use ‘firms’ throughout the PS to refer to the asset managers in scope of the regime.
4.1 This chapter summarises the key points of feedback to the anti-greenwashing rule and 4.2 We proposed an anti-greenwashing rule in the E SG Sourcebook to help ensure that sustainability-related claims made by all authorised firms about their products and services are fair, clear, and not misleading, and consistent with the sustainability profile 4.3 The rule applies to all communications about financial products or services which refer to the environmental and/or, social (ie , ‘sustainability’) characteristics of those products or services. Sustainability-related references can be present in, but are not limited to, statements, assertions, strategies, targets, policies, information, and images . Do you agree with our proposed general anti‑greenwashing rule? If not, what alternative do you suggest and why? proposals Stakeholder feedback and our response Guidance The majority of respondents agreed with our proposed rule. However, some stakeholders called for further guidance to support the implementation of the anti-greenwashing rule , to understand how best to comply with the rule. We are introducing the anti-greenwashing rule. T o provide further clarity on our expectations, we are consulting on guidance for the anti-greenwashing rule. The consultation was published today, for Respondents also asked about the interaction between the anti- greenwashing rule and the sustainability-related terms in the naming and marketing rules for asset managers. In our proposed guidance on the anti-greenwashing rule, we clarify that the rule applies to references to environmental and/or social characteristics of financial products or services. We do not provide a specific list of terms for the rule. Firms, including asset managers, must comply with the anti- greenwashing rule when it comes into force. The anti-greenwashing rule forms the foundation of our naming and marketing rules as

proposals Stakeholder feedback and our response Implementation Our proposal was for this rule to come into effect immediately on publishing our Policy Statement. However, respondents asked for more time for the anti-greenwashing rule to apply (some asked for 6- 12 months or for it to be aligned with the rest of the regime) as firms may experience operational issues when trying to implement it alongside the rest of the SDR regime. As we are currently consulting on the anti-greenwashing guidance, we propose extending the effective date of the anti-greenwashing rule. It will come into force on 31 May 2024. We decided on an earlier implementation date for the anti-greenwashing rule and guidance than the rest of the SDR regime as it applies to all sectors, and we did not want to delay implementing the rule for the rest of these sectors. We have taken into account feedback and provided more time compared to our initial proposal of immediate implementation. Investment principles of the labelling regime and general criteria 5.1 In this chapter, we summarise the feedback received on the overarching principles and features of the labelling regime. This includes stakeholder feedback on the proposed general qualifying criteria for use of the labels, and confirmation of the final criteria we are implementing. In the next chapter, we cover the specific qualifying criteria for use of each of the individual labels. 5.2 We proposed to introduce investment labels to help consumers navigate the market and build trust. We proposed 3 labels, which firms could choose to use if their products met the qualifying criteria, called ‘Sustainable Focus’, ‘Sustainable Improvers’ and 5.3 Key features of the proposed labelling regime included (but were not limited to): • Labels are for products seeking to achieve positive sustainability outcomes only – products using strategies such as ESG integration or basic ESG tilts alone would • Labelled products must have a sustainability objective as part of their investment • Labels distinguish between products based on the sustainability objective the product is seeking to achieve (referred to in the CP as ‘intentionality’), and on the primary and secondary channels by which the product may achieve a positive outcome for the environment and/ or society Do you agree with our characterisation of what constitutes a sustainable investment, and our description of the channels by which positive sustainability outcomes may be pursued? If not, what alternatives do you suggest and why? Do you agree with the proposed approach to the labelling and classification of sustainable investment products, in particular the emphasis on intentionality? If not, what alternatives do you suggest and why? Do you agree with our proposal to only introduce labels for sustainable investment products (i.e., to not require a label for ‘non sustainable’ investment products)? If not, what alternative do you suggest and why? 5.5 The majority of stakeholders broadly agreed with our characterisation of a sustainable investment and our proposed approach to labelling. A few respondents considered that our proposals did not go far enough and others suggested alternative approaches or interventions. We have carefully considered all of the feedback. The main areas of feedback we received and our responses are summarised in Ta b l e 4. proposals Stakeholder feedback and our response Key features Most respondents agreed with a labelling regime and the key features of sustainable investment products. We received significant feedback on the detailed criteria to qualify for a label. Given the broad support for the labelling regime, we are taking forward the proposals largely as consulted upon, with some clarifications, restructuring and simplification where possible. The labels are for products seeking positive sustainability outcomes. However, we have amended the naming and marketing rules to help consumers navigate and differentiate between both labelled and non- labelled products that have sustainability characteristics (see Chapter 7). proposals Stakeholder feedback and our response Many respondents were concerned that funds invested with a combination of the attributes of the Focus, Improvers and/or Impact labels would not qualify for a label under the proposals. They suggested consumers could be confused if these products were not Some respondents said that it may be difficult to fit multi-asset products into a single category. Other respondents asked us to clarify the distinction between each of the labels.
We agree that products invested in a mix of assets that are already sustainable, have the potential to improve their sustainability over time, and/or aim to achieve a positive impact should have a place in the labelling regime. This would give consumers a consistent approach when navigating the market for products seeking to achieve positive sustainability outcomes. Following further consumer testing, we have added a new fourth label called ‘Sustainability Mixed Goals’ to accommodate these products. In keeping with the rest of the regime, firms using the ‘Sustainability Mixed Goals’ label will need to meet the requirements under the specific criteria for each of the other labels the fund is invested across. The criteria for each of the other labels are set out in Chapter 6, and we discuss the Sustainability Mixed Goals’ label in more detail in Annex 2. Many stakeholders agreed with the primary and secondary channels for investor contribution that we identified. However, they did not agree that they should be prescribed for the labels, as they considered that firms should be able to use appropriate channels for Those that disagreed identified other investor contributor mechanisms, such as collaborative engagement and policy advocacy, or identified challenges including demonstrating a causal link between investor stewardship and positive outcomes. Stakeholders also called for more emphasis on the role the product’s assets will play in achieving sustainability outcomes, and the investor’s role in selecting those assets. The rules did not prescribe primary and secondary channels for investor contribution. We referenced them in the consultation to describe the differences between the labels, and said that ‘many, if not most, products generate outcomes via more than one of the channels’. We no longer refer to primary and secondary channels in

proposals Stakeholder feedback and our response Many stakeholders said that a sustainable investment should not include assets that cause harm or damage to other environmental or social factors (or other United Nations Sustainable Development Goals (SDGs)). They recommended that we should introduce minimum safeguards or require potential negative impacts to be explicitly recognised. Some stakeholders also suggested we should prevent firms from investing in certain assets, such as those relating We consider that it is for firms to determine what assets their products invest in. However, it is also important that firms provide sufficient transparency around the types of assets that their products will and will not invest in, so that consumers can make informed investment decisions. This is in line with Consumer Duty requirements. T o that end, we are introducing a rule that requires firms to identify and disclose (in their consumer-facing and pre- contractual disclosures) if pursuing the positive outcome could result in negative environmental and/or social outcomes. Stakeholders broadly agreed with our proposal and welcomed that we had listened to feedback to DP21/4, which included labels for ‘Responsible’ and ‘Not Promoted as Sustainable’ products. However, some respondents emphasised that consumers must be able to easily identify and navigate to others, such as ESG integrated, ethical, and exclusionary funds. Suggestions included introducing a label for those products, introducing a statement to clarify why those products do not have a label, and providing a warning on ‘unsustainable’ products. While the labels remain only for products seeking positive sustainability outcomes, we have amended the naming and marketing rules to help consumers to navigate to and differentiate between products using sustainability-related terms both with and without labels (see Chapter 7). We received mixed comments about whether there appeared to be a hierarchy between the labels. While some stakeholders welcomed that we are not introducing a hierarchy, others felt consumers would perceive one (potentially from Improvers to Focus and to Impact). We have not designed the labels as a hierarchy. They represent different types of investment objectives and investment approaches. Consumers are likely to place the labels into their own hierarchies according to their needs and preferences (as reflected in our latest

proposals Stakeholder feedback and our response Names of the labels We received some feedback on the names of the labels. Some stakeholders did not consider the term ‘Sustainable’ to be appropriate for the name of the label while the product is ‘improving’ its sustainability. Our consumer research also found consumers had mixed views on claiming that a ‘sustainable’ product could be We have amended the names of all labels from ‘sustainable’ to ‘sustainability’ to better reflect that the labels represent an investment approach. Firms’ disclosures should help consumers to understand the product’s objective and investment approach. Other We also received technical comments on how specific asset classes and strategies (such as real estate, Private Equity (PE) and Venture Capital (VC) funds, and index-tracking strategies), would qualify for the labels, and on alignment with existing initiatives and frameworks. We have sought to accommodate different asset classes and strategies in the labelling regime. We provide more detail and Summary of key features of investment the labelling regime • Firms can choose to use labels for products seeking to achieve positive sustainability outcomes, if they meet the qualifying criteria • The 4 labels – Sustainability Focus, Sustainability Improvers, Sustainability Impact, and Sustainability Mixed Goals – will help consumers to differentiate between different sustainability objectives and different investment approaches to achieve • The labels are not designed to be in a hierarchy 5.6 We proposed a set of qualifying criteria that must be met in order for products to use an investment label. This included requirements under 5 overarching sustainability objective, investment policy and strategy, KPIs, resources and governance, Do you agree with our proposed qualifying criteria? If not, what alternatives do you suggest and why? In your

– whether the criteria strike the right balance between – the different components to the criteria (including the implementing guidance in Appendix 2) – whether they sufficiently delineate the different label – whether terms such as ‘assets’ are understood in this 5.8 Stakeholders broadly agreed with the general criteria we proposed.
The feedback is summarised below in T able 5, along with our responses and corresponding updates to 5.9 Overall, we have restructured the criteria to more clearly set the criteria a product must meet, the requirements that the in-scope firm (the fund manager) must meet, and requirements that must be met on an ongoing basis. We have also simplified the language. We have clarified that the fund manager retains responsibility for compliance with the labelling rules, even where delegating any of the relevant activities to another

proposals Stakeholder feedback and our response Although stakeholders generally agreed with the need for products using the labels to have a sustainability objective, some thought that this objective should come under the investment policy and strategy rather than the investment objectives. Some asked for the rules to explicitly require that sustainability objectives have a plausible link to a ‘positive’ environmental and/ or social outcome. Stakeholders also asked for clarifications on the interaction between the sustainability objective and pursuit of a financial return, and whether pursuing multiple sustainability objectives would be acceptable. We have amended the definition of sustainability objective to include a reference to ‘positive’ environmental and/or social outcomes in the We have kept the requirement that a sustainability objective must be part of the investment objectives. Where the strategy to pursue the sustainability objective is likely to have a material impact on the financial return, firms must disclose the extent to which the strategy may have affected, or be expected to affect, the financial return. We have not been prescriptive about whether there are multiple objectives or about how these should be measured, provided that the objectives are clear and specific, that is, they build a clear picture of what the product is aiming to achieve. Given the broad nature of SDGs, referring to the SDGs alone is unlikely to be sufficient. proposals Stakeholder feedback and our response Some stakeholders sought clarification on whether the proposed 70% threshold for investing in assets under the Focus label applies to other labels, and some requested consistency across all labels. Some asked us to clarify our rationale for proposing ‘70%’. We received some requests for clarification on how assets held in the product for liquidity and risk management purposes (eg, cash, government bonds, derivatives) would be treated. Some stakeholders disagreed that firms should identify investments that a reasonable investor might consider to be in conflict with the sustainability objective. They either considered this would be too subjective, or that a labelled product should not include assets in conflict with the sustainability objective. Some stakeholders noted that it may be difficult for firms tracking indexes to retain responsibility for ensuring that index providers’ methodology align with the sustainability objective. 70% minimum threshold. In response, we have applied the 70% minimum threshold to all labels. Although the sustainability objective should represent the aims of the overall product, the product may invest in other assets for liquidity and risk management purposes, so long as 70% of the gross value of the product’s assets are invested in line with the sustainability objective. The minimum 70% threshold balances mixed feedback to our consultation and takes account of existing or proposed sustainability-related rules or guidance in other jurisdictions (for example some thresholds are higher, such as the European Securities and Markets Authority (ESMA) and the US Securities and Exchange Commission (SEC) proposed 80% for fund naming rules, while others are lower, such as the Monetary Authority of Singapore’s 66%). We have made some limited exceptions to this threshold for products during their ‘ramp up’ phase, and we have built provisions for circumstances where products fall below the threshold (see Asset selection. We have clarified that at least 70% of the product’s assets must be selected with reference to a robust, evidence-based standard that is an absolute (as opposed to a ‘relative’) measure of environmental and/or social sustainability. We have removed the requirement to identify assets in conflict with the sustainability objective as a labelled product should not include any assets in conflict with the objective. We have added a rule to that effect. Index-tracking products. We have clarified that the firm must use an index that aligns with the general and specific criteria for the label that it wants to use. Index-tracking products are discussed in more

proposals Stakeholder feedback and our response KPIs Stakeholders sought clarification on matters such as how to measure progress towards the sustainability objective; appropriate levels of coverage; acceptable targets for the Improvers and Impact labels; clarity on KPIs that might not be acceptable; questions around whether KPIs should be backward or forward-looking; and whether KPIs could change. Some stakeholders asked for mandatory KPIs, linked to existing standards or frameworks, to promote consistency. Firms must specify a measurable sustainability objective and determine the KPIs they will use to measure performance towards that objective. We are not prescribing the KPIs as firms will need to determine which KPIs are most appropriate for their products. Those KPIs may measure either the performance of the product or individual assets towards achieving the objective. We did not receive much feedback on this provision. However, some stakeholders sought guidance on our expectations, including what would be considered appropriate skills and experience, appropriate levels of due diligence, and our expectations on firms relying on third- We have removed some of the detail relating to resources and governance in line with our approach for a more principles- based regime. Firms, including where delegating activities, must ensure that there are resources, governance and organisational arrangements in place commensurate with the product achieving the product’s sustainability objective; there is adequate knowledge and understanding of the assets; and there is a high standard of due diligence in the selection of any data or other information used to inform investment decisions.
We recognise that specifics relating to resources and governance may differ according to the nature, size, and complexity of the firm and/or the sustainability objective of the

proposals Stakeholder feedback and our response Stewardship Most comments on stewardship are covered in the sub-section on the Improvers label in the following chapter. These related to challenges in demonstrating a causal link between stewardship and improvements; acknowledgement that stewardship takes place in different forms; and that investor stewardship strategies are usually developed at firm rather than product level. Some stakeholders called for greater links between our requirements and the UK Stewardship Code, published by the Financial Reporting Council (FRC), while others cautioned against it as not all firms will be Firms can play a key role in accelerating the transition to a more sustainable future through stewardship activities. So, stewardship is an important principle that applies to all of the labels. We have however removed some of the detail from the Improvers category. T o qualify for any label, firms must identify and apply the investor stewardship strategy and resources needed to support achievement of the product’s sustainability objective, including the activities the firm expects to undertake and outcomes it expects to achieve. We have not been prescriptive as to the form in which stewardship would take place or whether the strategy is at firm or product level. So, we have removed references to terms that may imply a certain approach (eg, ‘active’ stewardship, engagement, voting). We do not expect firms to demonstrate a causal link between their stewardship Disclosures may be cross referenced from UK Stewardship Code or other stewardship-related reporting. We received a small number of comments on the Implementing Guidance. In particular, stakeholders considered some of the guidance to be too prescriptive (eg, stewardship) or not achievable (eg, describing third parties’ methodologies). In response to requests for clarification on some of our proposed rules and guidance, we have now incorporated some of the proposed Implementing Guidance into final Handbook rules and guidance to help firms better understand the requirements and our expectations. Other matters are included under the ‘other considerations’ sections of our overview of the regime in Annex 2. The Implementing Guidance is no longer a standalone non- Handbook guidance document. We will consider whether there is need for further guidance as firms implement the regime. Summary of key features of the qualifying criteria 5.10 T o use a label, products must meet the general and specific criteria relating to that label on an ongoing basis. Firms must also meet certain requirements and make associated 5.11 The general criteria fall under 5 key • Sustainability objective. All products using a label must have a sustainability objective to improve or pursue positive environmental and/or social outcomes as part of their investment objectives. Firms must identify and disclose whether pursuing the positive sustainability outcomes may result in material negative • Investment policy and strategy. Ordinarily, at least 70% of the product’s assets must be invested in accordance with its sustainability objective, with reference to a robust, evidence-based standard that is an absolute measure of environmental and/or social sustainability. Firms must also identify and disclose any other assets held in the product for other reasons (eg, cash, derivatives), including why they • KPIs. Firms must identify KPIs to measure progress against the sustainability objective (these can measure the progress of the whole product or individual • Resources and governance. Firms must ensure there are appropriate resources, governance and organisational arrangements to support delivery of the • Stewardship. Firms must identify and disclose the stewardship strategy needed to support the delivery of the sustainability objective, including activities they expect to take and outcomes they expect to achieve . Firms must also set out an escalation plan to be able to take action when assets do not demonstrate sufficient progress towards the sustainability objective and/or KPIs. Assets subject to such action remain within the 70% threshold. 6.1 We proposed that, in addition to meeting the general criteria, firms wanting to use the investment labels would also have to meet label-specific criteria. Do you agree with the proposed distinguishing features, and likely product profiles and strategies, for each category? If not, what alternatives do you suggest and why? In particular, we welcome your views a. Sustainable whether at least 70% of a ‘sustainable focus’ product’s assets must meet a credible standard of environmental and/or social sustainability, or align with a specified environmental and/or social sustainability theme? b. Sustainable the extent to which investor stewardship should be a key feature; and whether you consider the distinction between Sustainable Improvers and Sustainable Impact to be sufficiently c. Sustainable whether ‘impact’ is the right term for this category or whether should we consider others such as ‘solutions;’ and the extent to which financial additionality should be a key feature? Do you agree with the category specific criteria – The ‘Sustainable focus’ category, including the 70% – The ‘Sustainable improvers’ category? Is the role of the firm in promoting positive change appropriately – The ‘Sustainable impact’ category, including expectations around the measurement of the product’s environmental or social impact? – Please consider whether there any other important aspects that we should consider adding. 6.3 Stakeholders broadly agreed with the proposed labels and we received constructive feedback on the specific criteria for each of the labels. Comments disagreeing with the proposed approach set out that the labels are broad and could lead to greenwashing or, on the other hand, that the bar to qualify is too high. Other comments included that labels do not reflect the investment decision-making process, and consumers may overlook non-labelled products, including ethical funds. 6.4 We proposed to introduce a label for products investing mainly in assets that are sustainable for people and/or the planet.
We proposed that at least 70% of the product’s assets would need to meet a credible standard of environmental and/or social sustainability, or to align with a specified environmental and/or social sustainability Do you agree with the category‑specific criteria • The ‘Sustainable focus’ category, including the 70% 6.6 Stakeholders agreed with the purpose of the label but sought clarifications on some of its features. In addition to those captured in other chapters, we received comments in Aspect of criteria Stakeholder feedback and our response Threshold We received mixed views on the requirement for at least 70% of the assets to meet a credible standard of sustainability or to be invested according to a sustainability theme. Some considered 70% too high for a diversified product suitable for retail investors, some considered it too low to meet consumers’ expectations, and others considered it to be at the right level. Some also suggested that it could be reviewed regularly. However, some did not think a threshold should be needed as the sustainability objective should apply to the whole product. As outlined in Chapter 5, the sustainability objective should represent the aims of the product as a whole. We have kept the requirement that at least 70% of the product’s assets must be pursuing the sustainability objective, recognising that products are likely to hold assets for other purposes (eg, liquidity and risk management). Aspect of criteria Stakeholder feedback and our response Many stakeholders sought clarification on what constitutes a credible standard of environmental or social sustainability. Questions included whether proprietary standards are sufficient, and whether the standard should be an absolute or relative measure of sustainability (with mixed views about whether ‘best in class’ or ratings/scores are sufficient). Some were concerned that, until common standards appear, verification of standards and comparison of products may be difficult, so there may still be greenwashing risks. Some stakeholders asked whether multiple standards can be used We have removed the term ‘credible’ and replaced it with the attributes of the standard. We now refer to a ‘robust, evidence-based standard that is an absolute measure of sustainability’. Firms will need to determine a standard that aligns with their product’s sustainability objectives, and select assets that meet the standard, based on a methodology or approach that is determined by industry practice, an authoritative body or proprietary standards. The standard may be based on general environmental and/or social criteria such as the percentage of revenue associated with sustainability matters; reference an authoritative taxonomy such as the EU taxonomy or forthcoming UK Green T axonomy; or set a minimum threshold of greenhouse gas (GHG) emissions for assets. It must however be robust (ie stand up to scrutiny), and evidence-based (ie derived from or informed by an objective and relevant body of data or other evidence). We provide more detail in Annex 2, Box 2. Many stakeholders sought clarification on the need to obtain ‘independent assessment’ on a credible standard. Some were concerned that assessment or verification by a third party would be costly and potentially not valuable until providers developed capabilities to carry out such an assessment. Many suggested allowing independent assessment via established internal processes – such as internal audit, independent non-executive directors (iNEDS), the Product Intervention and Governance Sourcebook framework, or processes for assessment of value. We have not prescribed whether the independent assessment should be via an internal process or a third party, provided that it is independent to the manager’s investment process. Firms may consider their existing internal processes or functions to be appropriate for the assessment as long as those carrying out the assessment are appropriately skilled. For transparency, firms will need to disclose the basis on which the standard is considered to be appropriate, and the function or third party that undertook the assessment (but not the name of the individual). Aspect of criteria Stakeholder feedback and our response Some stakeholders commented that investing in accordance with a theme may not be considered as robust or on a level playing field as meeting a credible standard of sustainability. Some considered thematic investing to be better suited to the Impact category. Some, however, agreed with the approach and sought clarification as to whether a product could be pursuing more than one theme. We have removed the option for a product to qualify for a Sustainability Focus label on the basis that 70% of its assets align with a sustainability theme alone. Thematic investing approaches may be applied across any of the labels (as discussed in Annex 2). The rules for a Sustainability Focus require 70% of the assets to meet a robust, evidence-based standard that is an absolute measure of sustainability – although the product can, in turn, be invested Summary of key features of a Sustainability Focus label • The sustainability objective must be consistent with an aim to invest in assets that are environmentally and/or socially sustainable, determined using a robust , evidence-based standard that is an absolute measure of sustainability • A minimum of 70% of a Sustainability Focus product’s assets must meet that standard, and other assets must not be in conflict with the sustainability objective • For all labels, independent assessment to confirm the standard is fit for purpose may be obtained via either internal processes or third parties, provided that the chosen method is independent from the manager’s investment process • The product may invest according to themes, provided that the requirements 6.7 We proposed to introduce a label for products investing in assets that may not be sustainable now, with an aim to improve their sustainability for people and/or planet over time, including in response to the stewardship influence of the firm. Do you agree with the category‑specific criteria • The ‘Sustainable improvers’ category? Is the role of the firm in promoting positive change appropriately

6.9 Many respondents welcomed this category but some did not.
The feedback and our responses are summarised Aspect of the criteria Stakeholder feedback and our response General feedback Stakeholders agreed that the labelling regime should accommodate investment in assets on a pathway to becoming more sustainable and for which investors can play a role in accelerating improvements. Some, however, cautioned against the category becoming a ‘catch- all’ for any product claiming to be improving over time. We received several suggestions for refinements to the criteria to help mitigate In addition to the comments received about using the term ‘sustainable’ in the name of the label, some stakeholders suggested consumers could be sceptical of this category and less likely to invest until improvements can be demonstrated. We also received some calls to clarify the differences between the Improvers label and ESG integration, and between the Improvers and Impact labels. We see this label as an important category for supporting the transition to a more sustainable future. We have made some refinements to the criteria to clarify our expectations and help to mitigate concerns of it becoming a ‘catch-all’ label. These are outlined in our response to feedback in the paragraphs below. We have set out the differences between each of the labels in Annex 2. Aspect of the criteria Stakeholder feedback and our response Many stakeholders asked us to clarify how to determine assets that have the ‘potential to become more environmentally or socially sustainable over time’. They also asked what happens to assets that have met their target for improvement, and many noted that divesting would not be a good outcome. Some stakeholders asked for clarification on how to treat assets that may be improving in one area but not in another, or where negative outcomes outweigh positive ones. We received mixed feedback on timeframes for improvements – some called for products to have either long-term or short -term targets, while others suggested long-term targets with regular updates on progress and/or interim/ short/ medium-term targets. We also received some feedback that specifying targets for improvements will be difficult for index- We have added a rule to clarify that the potential to become more environmentally or socially sustainable over time means the potential to meet a robust, evidence-based standard that is an absolute measure of environmental and/or social sustainability over time. This approach puts greater emphasis on the firm’s asset selection process. Firms must select assets on the basis of evidence that they have the potential to improve in time. We have also added a requirement that the firm must develop short and medium-term targets for improvements, and that these should be consistent with the investment horizon for the product. However, it is for firms to decide how to treat products or assets that have met their target(s) for improvement. KPIs Some stakeholders asked how to determine and disclose KPIs that would sufficiently demonstrate performance towards a product’s sustainability objective. Some examples that stakeholders considered useful the TCFD’s recommended metrics, Global Impact Investing Network (GIIN) Compass methodology, or relevant external benchmarks. Some called for qualitative KPIs to be Stakeholders also asked whether KPIs should be identified at product or asset level. Some considered product-level KPIs to be more appropriate as different assets may be improving at different timescales, while others wanted the option for either or both. We have not prescribed KPIs as firms must select KPIs that are relevant for their specific products. We have however clarified that KPIs can demonstrate the improvement of either the product as a whole and/or the improvement of individual assets within

Aspect of the criteria Stakeholder feedback and our response Stewardship Stakeholders felt that the proposed criteria focused too heavily on the role of investor stewardship, and we received mixed views on what the appropriate balance between the role of stewardship and assets’ own improvements should be. Stakeholders were concerned that it would be difficult for a firm to demonstrate a causal link between their stewardship and an asset’s improvement. Some also considered that it may favour larger asset managers given the time and resource implications. We were asked to acknowledge that stewardship strategies are usually applied at firm rather than product level; stewardship may take place in different forms (including collective action); stewardship priorities may change depending on company/market developments; and the outcomes rather than the process are key. Some stakeholders also asked us to clarify what ‘good’ stewardship looks like and to set more specific expectations including on voting and stewardship-related metrics. We were also asked to require firms to have a clear escalation plan for assets that make insufficient As outlined in Chapter 5, stewardship can play a significant role in accelerating the transition to a more sustainable future and is important for this label , as well as the other labels. We have however removed the stewardship-related requirements from this label, which instead apply as part of the general criteria. We have also added a requirement for firms to have an escalation plan for products using We will monitor developments and consider whether and how to update our requirements accordingly. We encourage industry to develop best practice tools and guidance in the meantime, which we Summary of key features of a Sustainability Improvers label • The sustainability objective must be consistent with an aim to invest in assets that have the potential to improve environmental and/or social sustainability over time – determined by their potential to meet a robust, evidence-based standard that is an absolute measure of environmental and/or social sustainability . • Firms will need to identify the period of time by which the product and/or its assets are expected to meet the standard, including short and medium-term targets. They must also obtain robust evidence to satisfy themselves that the assets have the potential to meet the standard . • Firms’ investor stewardship strategy should support delivery of the objective and help to accelerate improvements in sustainability over time . • KPIs must be relevant to the product’s sustainability objective and are therefore not prescribed.
As with all labels, KPIs can demonstrate progress of the product or individual assets towards the sustainability objective . 6.10 We proposed a label for products investing in solutions to problems affecting people or the planet (often in underserved markets or to address observed market failures) to achieve real-world impact. These products would have an explicit objective to achieve a positive, measurable contribution to sustainable outcomes. Do you agree with the category‑specific criteria • The ‘Sustainable impact’ category, including expectations around the measurement of the product’s environmental or social impact? 6.12 The feedback to our proposals for the Sustainability Impact label is summarised Aspect of the criteria Stakeholder feedback and our response General feedback Stakeholders broadly welcomed this category and most agreed that it should be called ‘Impact’ rather than ‘Solutions.’ Some stakeholders noted that all labels lead to some form of ‘impact’ and called for clarity on the differences between either the Impact and Improvers or Impact and Focus labels. Others considered this the clearest category with respect to its key features and criteria. We have kept the name ‘Impact’. However, for clarity and simplification, we have removed the reference to ‘real-world’ impact throughout the criteria. We recognise that all labels lead to some form of impact and outline the differences between the labels in

Aspect of the criteria Stakeholder feedback and our response Financial additionality The most common area of feedback on this category related to financial additionality and concerns that the proposals only allowed for impact to be achieved through directing new capital into assets, thereby limiting the label to investments in private markets. Stakeholders were concerned that this would narrow the category considerably, as the products that could qualify would typically not be suitable for retail investors. Many suggested that the contribution made by assets within a product to a real-world outcome should be given equal weight to the investor’s contribution. Stakeholders also recommended aligning more closely with existing initiatives and frameworks for impact investing. Some also suggested referring to ‘investor contribution’ instead of additionality. Similar to our response regarding primary and secondary channels for investor contribution in Chapter 5, we confirm that firms are not required to invest new capital for their products to qualify for a Sustainability Impact label. We have, however, made small amendments to the criteria to acknowledge the role that the product’s assets may have in contributing to positive impact alongside the investor’s contribution. This approach is consistent with existing impact investing frameworks. Some stakeholders did not agree that the category should be limited to directing capital to underserved markets or to addressing market failures. They suggested either removing this or clarifying what underserved markets and market failures mean. We do not require firms to direct capital to underserved markets or Financial returns We received some calls for us to clarify our expectations regarding financial return, including whether products must aim to deliver impact ‘while providing a financial return’, and whether the real-world outcome should be prioritised over a financial return. We have not included financial return expectations in the criteria for the Sustainability Impact label. As discussed in Chapter 5, if the investment strategy to pursue the sustainability objective is likely to result in any material impact on the financial return, this will need to

Aspect of the criteria Stakeholder feedback and our response Theory of change Comments on the proposal that firms must specify a theory of change in line with the sustainability objective included that the theory of change should be clearly defined (or replaced with a requirement to define the sustainability problems and investors’ proposed solution), reviewed periodically, science-based, and that the asset selection process should include identification and mitigation of potential negative impacts. Most stakeholders that commented on whether the theory of change should apply at asset or product level considered it should be at asset level. We have retained the requirement for firms to specify a theory of change; firms have the flexibility to decide whether it is applied at Measurability Some stakeholders asked for guidance on how to measure and report real-world outcomes, particularly social outcomes. Some noted that requiring a ‘robust method to measure and demonstrate’ impact implies using a quantitative approach and suggested amending to ‘assessing’ the impact to allow for a qualitative method of measurement. Stakeholders also asked what we meant by ‘enhanced’ impact measurement. Firms must be able to stand behind any claims they make regarding a product’s objective to deliver a positive impact. They must be able to measure both the impact the product’s assets may make as well as We have not been prescriptive as to whether the method of measurement is quantitative or qualitative, provided that it is robust and details of the impact achieved are clearly disclosed (in the ongoing product -level reporting). Escalation plan While stakeholders typically agreed that firms must specify an escalation plan should the real-world outcome no longer plausibly be achievable, some noted that potential divestment of assets is not an option for certain asset classes or strategies (such as private equity/ Firms must identify an escalation plan to be able to take action when assets do not demonstrate sufficient progress towards the sustainability objective and/or KPIs. Assets subject to such action remain within the 70%. However, firms must review and consider whether it remains appropriate to use a label at least annually. This applies across all labels. Our rules do not require divestment from assets as part of the escalation plan. Summary of the key features of a Sustainability Impact label • The sustainability objective must be consistent with an aim to achieve a pre-defined positive measurable impact in relation to an environmental and/or • Firms must specify a theory of change setting out how they expect their investment activities and the product's assets to achieve a positive impact .
• Firms must specify a robust method for measuring and demonstrating the positive impact of both the assets the product invests in and the firms’ • As with all labels, firms must have and carry out an escalation plan in cases where assets are not demonstrating sufficient progress towards the sustainability

7.1 This chapter summarises the feedback received on the naming and marketing rules which apply to products made available to retail investors that do not use one of the labels. We proposed that these products would be restricted from using any sustainability-related terms in their product names and marketing. The requirements would not apply for the purposes of disclosing factual information in the pre-contractual disclosures, consumer -facing disclosures, or any other disclosure requirements the firm Do you agree with our proposed product naming rule and prohibited terms we have identified? If not, what alternative Do you agree with the proposed marketing rule? If not, what alternative do you suggest and why? Are there additional approaches to marketing not covered by our proposals that could lead to greenwashing if 7. 3 A small minority of stakeholders – including consumer groups – agreed with our proposed approach to naming and marketing. They considered it to be a clear approach that would help consumers navigate the complex landscape and protect them from greenwashing. However, many stakeholders considered the approach to marketing in particular to be too constraining. We summarise the feedback and our response below. proposals Stakeholder feedback and our response General feedback Some stakeholders agreed with our proposals for both naming and marketing, or naming alone, as they considered it would lead to a clear investment product landscape for consumers. Some stakeholders considered the anti-greenwashing rule, Consumer Duty, existing COLL rules and the Guiding Principles as sufficient requirements for firms to accurately name and market their products and did not agree with our proposals. Those stakeholders considered the proposals could hinder consumers’ ability to differentiate between products and restrict consumer choice in products without a label. They were also concerned that firms may be discouraged from adopting sustainability-related investment approaches, firms could create other terms to describe their approaches, or that the proposals could lead to so called ’greenhushing’ (where organisations hide their ESG credentials to avoid scrutiny and regulatory requirements). They were also concerned that there may be a disconnect between regulatory disclosures (which may include those terms if integral to the investment approach) and marketing, as well as a mismatch between disclosures for retail and institutional investors, and Some stakeholders also asked us to consider the costs and timelines for updating existing products to meet our proposed requirements. We recognise the strength of this feedback. It is important that consumers can navigate the market and find the products that meet their needs and preferences. This includes products that may not qualify for or use a label, but nevertheless have some sustainability characteristics. However, firms must accurately describe the sustainability characteristics of those products. Our final naming and marketing rules and guidance aim to strike the right balance. We have made some amendments so that firms can continue to use sustainability-related terms in product names and marketing (i.e. financial promotions) if they use a label or if they meet the product name, disclosure and statement conditions outlined in the summary below, Annex 2, and Appendix 1.

proposals Stakeholder feedback and our response Naming Many stakeholders suggested that we continue to restrict the use of sustainability-related terms in product names but not marketing. Some stakeholders suggested that the terms ‘sustainable’ and ‘impact’ should be protected as they are used for labels, but that terms used to describe investment approaches like ‘responsible’ and ‘exclusions’ should not be restricted. Some asked whether terms like ‘ethical’, ‘Socially Responsible Investing (SRI)’, ‘forestry’ or synonyms to terms in our proposed list can be used. Others wanted a more comprehensive list including, for example, ‘earth’ and ‘nature’. Some also said that passive funds need to be able to use index provider’s product name in their own product, which may include The name of a product is very important. We have made some amendments that enable firms to continue using sustainability- related terms in their names if certain conditions are met. These include producing certain disclosures and a statement to clarify that the product does not use a label and why (see the summary below, We have retained the non-exhaustive list of sustainability-related terms in the Handbook as a starting point. The list includes ‘any other term which implies that a product has sustainability characteristics’. The naming rules are consistent with our Guiding Principles and anti- greenwashing rule. They specify that products using sustainability- related terms in their names must have sustainability characteristics and the name must accurately reflect those characteristics. We clarify in guidance that those characteristics should be material to the product ie, at least 70% of the product’s assets. We continue to restrict the use of ‘sustainable’, ‘sustainability’ and ‘impact’ to In the case of passive funds, fund managers could choose not to name their product after the index it tracks if it does not meet our requirements, or should satisfy itself that the index name meets the We recognise that ‘ethical investing’ is a common approach, and we want consumers to be able to identify all products that meet their needs and preferences, including where those needs and preferences may be to invest in line with their individual ethics and values. In our consultation, we clarified that values-based investing is different to investing with an aim to achieve positive environmental and/or social outcomes. However, where an ‘ethical’ investment product has and markets sustainability (environmental and/or social) characteristics, it would be in scope of our naming and marketing

proposals Stakeholder feedback and our response Marketing Many stakeholders asked for the rules to allow factual and proportionate use of sustainability-related terms in marketing.
They said firms must be able to describe sustainability-related investment approaches, activities, and reporting using terms such as ‘responsible’, ‘ESG integration’, ‘ESG index-tracking strategies’, ‘engagement’, ‘governance’, ‘net zero commitments’, ‘TCFD reporting’, and ‘UK Stewardship Code reporting’. Some stakeholders suggested that products using sustainability- related terms without a label could include a disclaimer to clarify that the product does not have a label. Some stakeholders asked about the impact on overseas funds, particularly those classified as Article 8 and 9 under SFDR, and some asked that we remain consistent with approaches in the EU and US which have not proposed marketing restrictions. Some stakeholders asked for examples of good and poor practice. Firms should be able to accurately describe their products so that consumers are able to navigate to those that meet their needs and preferences. So, we have made amendments to the requirements so that firms can continue to use sustainability-related terms in their marketing if certain conditions are met. These include producing certain disclosures and a statement to clarify that the product does not use a label and why (see the summary below, Annex 2 and Appendix 1). Firms must comply with the anti-greenwashing rule and other financial promotions rules when using the terms, and we encourage firms to consider proposed guidance in GC23/3. The naming and marketing rules only apply when the sustainability- related terms are being used for products marketed to retail They only apply when referring to sustainability characteristics and do not preclude firms from using the terms in other contexts, such as to describe the ‘economic climate’ or ‘financial impact’. They also do not apply when firms are making short, factual, non-promotional statements about a product, such as when making a statement about who is ‘responsible’ for providing services in relation to a product, or stating that ‘Firm X produces its sustainability product We continue to work with HMT on its approach to overseas funds. Summary of key features of the naming and marketing rules • All FCA-authorised firms are subject to the anti-greenwashing rule which requires that sustainability-related claims must be clear , fair and not misleading. This is consistent with the Consumer Duty’s ‘consumer understanding’ outcome and forms the foundation of our naming and marketing rules for asset managers as well. • Sustainability-related terms can only be used in product names and marketing – they use a label – provided that, where the ‘sustainability focus’ , ‘sustainability improvers’ or ‘sustainability mixed goals’ labels are used, the word ‘impact’ is not used in the product’s name, or – they do not use a label but comply with the the ‘Product name’ and ‘Marketing’ • The product must have sustainability characteristics and the product’s name must accurately reflect those characteristics, but the terms ‘sustainable’ , ‘sustainability’ , ‘impact’ and any variation of those terms must not be used. • Firms must produce the same types of disclosures as required for a labelled • Firms must also produce and prominently publish a statement (on the relevant digital medium for the product and in the product-level disclosures) to clarify that the product does not have a label and the reasons why. • In the case of a feeder fund, the product must only include in its name terms which are consistent with those used by the relevant master fund and the asset manager must provide clients with easy access to the disclosures referred to above, and produce the relevant statement. • Firms must produce the same disclosures and statement as those required when sustainability-related terms are used in the name of a product. • In the case of a feeder fund, firms must meet the same conditions as when sustainability-related terms are used in the name of the product (above). 8.1 We consulted on a tiered approach to disclosures, providing accessible information to retail investors and further detail to those who want to know more. We proposed the • Ongoing product-level disclosures 8.2 We proposed that firms produce consumer -facing disclosures summarising the product’s key sustainability characteristics. This would help consumers to understand those characteristics and compare similar products. We proposed that the consumer - facing disclosure would be produced by firms for all products, including those which were not engaged in sustainability-related strategies. 8.3 The disclosure would be provided in a new, standalone document, alongside other documents that provide key investor information. We did not propose a specific template for the information but, to promote consistency, we set out the categories of disclosures that firms would be required to make. Do you agree with our proposed approach to disclosures, including the tiered structure and the division of information to be disclosed in the consumer‑facing and Do you agree with our proposals for consumer‑facing disclosures, including location, scope, content and frequency of disclosure and updates? If not, what alternatives do you suggest and why? Do you agree with the proposal that we should not mandate use of a template at this stage, but that industry may develop one if useful? If not, what alternative do you

proposals Stakeholder feedback and our response Most stakeholders broadly agreed with our proposed tiered approach to disclosures. Some said that too much information is difficult for consumers to absorb, while greater standardisation – particularly around metrics – could Many other comments were consistent with those captured in other areas of feedback, including in relation to ‘do no harm’, the importance of clear Location Most stakeholders said that the consumer-facing disclosure should not be in a standalone document and asked how our proposals are aligned to the broader HMT review of the UK Retail Disclosure regime. Many stakeholders would prefer to include the information in the Key Investor Information Document (KIID) and ensure consumers can directly compare other important non-sustainability disclosures, such as charges and risk profiles. A few stakeholders raised concerns about the proposals resulting in multiple documents for consumers to read. We have not amended our requirements in relation to the form and location of the consumer-facing disclosure.
The consumer-facing disclosure must be in a standalone document, presented in a prominent place on the product webpage, app or other digital medium, alongside other key investor information. This may be achieved by co-locating the documents on product pages and ensuring clear signposting from the consumer-facing disclosure to Our consumer research showed that having a separate document to explain sustainability characteristics improved consumer comprehension. We have also specified the types of information that must be included in the disclosure to help address the current lack of consistent and accessible sustainability-related information. However, we have not prescribed a We have sought to balance principles with prescription on key elements in the consumer interest where it is meaningful. This should help to improve consumer understanding of the sustainability characteristics of products and hence decision-making. We continue to stay closely engaged with work under the Future Disclosure Framework to ensure compatibility of requirements. As the framework develops, we will consider how best to facilitate consumers being able to make a holistic, decision-useful, evaluation of a product offering – ensuring information on ESG factors and sustainability is considered alongside other risks and costs. proposals Stakeholder feedback and our response Scope The majority of stakeholders agreed that consumer-facing disclosures should be produced for products with a label. However, they considered that producing disclosures for non-labelled products would be an unnecessary burden and cost, as information may not be relevant for consumers. As captured under the feedback for marketing in Chapter 7, some stakeholders suggested there could instead be a disclaimer that the product does not have We acknowledge that it may not be proportionate at this stage for products not using sustainability-related terms in their names and marketing to have a consumer -facing disclosure. So, our final rules only require consumer -facing disclosures for labelled products and products using sustainability-related terms in their naming and marketing (with the exception of where terms are used to make short, factual, non-promotional statements in marketing materials). Consumer -facing disclosures for products not using labels but with sustainability-related terms in their names or marketing must include a statement to clarify that the product does not have a label. Our consumer research indicated that consumers would find it helpful to know this information. Most stakeholders broadly agreed with the content of disclosures. Some stakeholders considered the information may be too complex for consumers, and some believed it may therefore be difficult to restrict the disclosures to 2 pages. A few stakeholders also commented on the importance of clear and Most stakeholders disagreed with the ‘unexpected investments’ category. Some said it is open to interpretation or that consumers may not have a clear idea of what is ‘unexpected’, and there may be negative associations with the word. Some noted that assets should be in line with the product’s objective and there should therefore be no need for this category. Other comments included that we should provide guidance on sectors or themes that may be considered ‘unexpected’, and that it may be difficult to keep up to date due to changes in the portfolio or external environment. We have made a few amendments to the categories of disclosures that must There is no longer a separate category of ‘unexpected investments’, but the disclosure must include, under the sustainability approach, details of any types of assets held for reasons other than to pursue the sustainability objective and why these are held. Firms must also disclose any material negative environmental and/or social impacts that may arise (or have arisen) in pursuing the sustainability objective. This approach should provide the needed clarity to consumers about what the product is invested in, as per our latest consumer research, without explicitly referring to ‘unexpected’ investments. Where a ‘sustainability mixed goal’ label is used, the disclosure must include details of the proportion of assets invested in accordance with each relevant Where a product without a label uses sustainability-related terms in naming and/or marketing, we have specified the minimum information required (see

proposals Stakeholder feedback and our response Stakeholders broadly agreed with the proposal for reviewing and updating disclosures on an annual basis, with some stakeholders proposing some flexibility to align with annual year-end dates for funds and having regard to data availability throughout the year. However, some disagreed with the proposal to notify investors sixty days in advance prior to a change in the disclosure and proposed that we align with existing rules on notifications based on materiality. In our final rules, we specify that firms must review and update the consumer- facing disclosure at least every 12 months. We have also simplified the notification requirements so that firms using labels notify their clients of changes (eg, revising or ceasing to use a label) and update their consumer- facing disclosures as soon as reasonably practicable. Template The majority of stakeholders agreed with our proposal not to provide a template at this stage, but that it may be helpful for industry to develop one. Some noted challenges with more prescriptive templates from other initiatives, such as SFDR, although some felt a mandatory template could be helpful now or in the longer term to support standardisation. Most stakeholders nevertheless agreed that, at this stage, we should specify the types of information to disclose to ensure standardisation and compatibility, and said this approach would still allow flexibility to account for the range of Stakeholders asked how an industry-led template could be developed and some offered to help or encouraged multiple organisations to produce it. However, a few stakeholders felt that an industry template could be complex and costly, with the need to evolve over time. We have not added a template for the consumer-facing disclosure but continue to set out the categories of disclosures that firms must make. This will help promote a consistent flow of information but still provide firms with flexibility in presenting the information. We also continue to encourage development of an industry-led template and industry collaboration on best practice.
T o inform our consultation, we carried out behavioural research with 15,000 participants to assess how well product classification, labelling and disclosures may help consumers navigate the market. We have carried out some further in depth qualitative consumer research with around 45 participants to focus on some key aspects of our final rules, including the introduction of the mixed label and disclosures. Our research found that consumers supported the idea of the labelling regime and understood the regime with 4 labels. We sought views on the name of the new label and found that names including ‘Goals’, such as ‘Sustainability Mixed Goals’, were clearer and better understood by participants. Overall, participants responded positively to the labels and felt that the consumer - facing disclosure was important to help them understand what the labels meant. It was also clear that consumer education is important for consumers to understand that firms – rather than the FCA – are responsible for assessing their products against the criteria to use a label. We have developed a webpage which includes more detail on the regime for consumers. We have published an executive summary of the consumer research. Summary of key features of the consumer-facing disclosures • Firms must produce a clear , concise consumer-facing disclosure for i) products with a label and (ii) or products using sustainability-related terms without a label. • It must be located in a prominent place on the relevant digital medium (eg, webpage, mobile app) through which the product is offered, and hard copies must be made available on request. It must not exceed 2 pages. • The disclosure must include the following – either the product’s sustainability objective and label, or the statement to clarify that the product does not have a label; – the investment policy and strategy (including what the product will and will not – details of where a consumer can access other relevant sustainability and non- sustainability information; and – for the ‘Sustainability Mixed Goals’ label only, the proportion of assets invested in accordance with each of the other relevant labels. • It must be reviewed and updated annually as appropriate. Disclosures for products with labels must, at a minimum, be updated to reflect progress towards achieving the sustainability objective . Detailed product-level disclosures 8.5 We proposed the following detailed product -level disclosure requirements, aimed at institutional investors and retail investors who may want more • Pre-contractual disclosures made in either a fund prospectus, prior information document, or ‘Part A ’ of a sustainability product report, as relevant; • Ongoing product-level disclosures made in Part B of a sustainability product • On-demand information that certain firms must provide on request to eligible 8.6 We proposed that firms using a label would be required to produce these disclosures, and the information disclosed would be associated with the general and specific labelling criteria. We also proposed that where products without a label have sustainability characteristics that are integral to their investment policy and strategy, those features must be disclosed in the relevant pre-contractual documents. Do you agree with our proposals for pre‑contractual disclosures? If not, what alternatives do you suggest and why? Please comment specifically on the scope, format, location, content and frequency of disclosure and updates. Do you agree with our proposals for ongoing sustainability‑ related performance disclosures in the sustainability product report? If not, what alternative do you suggest and why? In your response, please comment on our proposed scope, location, format, content and frequency Do you agree with our proposals for an ‘on demand’ regime, including the types of products that would be subject to this regime? If not, what alternative do you suggest proposals Stakeholder feedback and our response General feedback Stakeholders broadly agreed with our proposals and many of the comments have been captured earlier in this PS (eg, information relating to ‘do no harm’ and ‘unexpected investments’, sequencing

proposals Stakeholder feedback and our response Stakeholders broadly agreed with the proposals. We also received requests for us to take a proportionate, non-prescriptive approach, and to align or allow cross-referencing with SFDR and other existing product -level disclosure requirements. In relation to pre-contractual disclosures, some stakeholders considered that our investment policy and strategy requirements could result in lengthy disclosures, and did not agree that sustainability-related disclosures should be in a separate section of the pre-contractual materials. Some also felt that pre-contractual disclosures for investor stewardship could become a tick-box exercise. Some also noted that updating pre-contractual materials We are proceeding with the disclosure requirements, with some amendments to reflect changes to the requirements and wording of the qualifying criteria for labels. T o avoid undue disclosure burden, firms are able to cross-reference to relevant information from their ongoing product -level disclosures, such as to Stewardship Code reporting, provided that the information is relevant and clearly We have also clarified that pre-contractual materials do not need to be updated annually, but must be updated as soon as reasonably practicable when revising or ceasing to use a label. We no longer require disclosures relating to the investment policy and strategy to be in a separate section of the pre-contractual materials, provided that the disclosures are clearly identifiable. Data, metrics Stakeholders noted potential challenges regarding data availability and/or quality. Suggestions to address these included allowing qualitative disclosures on progress towards the sustainability objective, mandating reporting on data quality, disclosing data ‘as far as able’ and introducing a safe harbour for KPI disclosures. Some stakeholders asked for reporting against the UK Green T axonomy (once developed) and for all products to report in line with We have not amended our requirements relating to data. Firms using labels must take reasonable steps to ensure the data used for KPIs is accurate and complete. All firms disclosing KPIs or other metrics may use proxies and assumptions to address data gaps.
Firms may also choose to disclose data quality metrics to provide transparency on the proportion of the product for which data are verified, reported, We have not added any requirements for all products to disclose a baseline of metrics. We will however consider updating product- level disclosure requirements in line with UK and international developments, such as the UK Green T axonomy and future ISSB

proposals Stakeholder feedback and our response On demand We received mixed views, including requests to clarify how the rules apply to different types of firm and comments that the approach may be disproportionate for smaller firms. Rather than requiring firms to respond to client requests, stakeholders suggested requiring annual disclosure, aligning with existing reporting periods, or allowing the firm to develop its own reporting cycle. Some also sought clarification on whether disclosures could be requested for all products – with or without a label. We are proceeding with the on-demand sustainability information requirements broadly unchanged, except for small updates to reflect the implementation timeframe of the regime. The rules apply in respect of UK Alternative Investment Funds (AIFs) not listed on a recognised exchange, and we will consult on the application of the regime to portfolio management services in early 2024. As with on- demand requirements under our climate-related disclosure rules, firms can either provide information as at an agreed calculation date with the client, or select the most recent calculation date for which up-to-date information is available. Summary of detailed product-level disclosure • All products using a label or using sustainability-related terms in their naming and/ or marketing without a label must include sustainability information – pre-contractual disclosures (from the date the label is first used or by 2 December 2024 for products using the terms without a label), and – ongoing product-level disclosures annually (after 12 months from either the date the label or terms are used) • For products using a label, the information that must be disclosed is broadly associated with the qualifying criteria for the labels. • For products not using a label, the pre-contractual and ongoing product-level disclosures must, at a minimum, include information relating to the investment policy and strategy and any relevant metrics. • For the ‘Sustainability Mixed Goals’ label only, the disclosures must include the proportion of assets invested in accordance with each of the relevant labels, and the information required in relation to those labels. 8.8 We proposed that all asset managers with AUM above £5 billion (regardless of whether they use a label or sustainability terms) must produce disclosures on how they are managing sustainability risks and opportunities in a ‘sustainability entity report’. We proposed that these disclosures would build on the TCFD structure, requiring disclosures on governance, strategy, risk management, and metrics and targets. T o help firms determine the content of disclosures that may be useful for clients and consumers, we also proposed to add Handbook guidance referencing the ISSB’s sustainability disclosure standards (IFRS S1) and Sustainability Accounting Standards Do you agree with our proposals for sustainability entity report disclosures? If not, what alternatives do you suggest and why? In your response, please comment on our proposed scope, location, format, content, frequency of Do you agree with how our proposals reflect the ISSB’s standards, including referencing UK adopted IFRS S1 in our Handbook Guidance once finalised? If not, please proposals Stakeholder feedback and our response Many stakeholders noted that in building from TCFD requirements, disclosures would focus on sustainability-related financial reporting. Many requested that we require firms to disclose their wider impacts on the environment and society as well, particularly given the labelling regime focuses on products that aim to achieve positive outcomes for the environment and/or society. We agree that disclosure of firms’ impacts on the environment or society would be useful for clients and consumers. So, we have added a Handbook guidance provision stating that firms should consider disclosing their impact on the environment and/or society, having regard to the Global Reporting Initiative (GRI) Standards. We have also referenced the GRI Standards in guidance that may be relevant to firms when determining the content of their disclosures. While we have only referenced the GRI’s Universal Standards, we encourage firms to consider the T opic Standards and new Sector Standards that are being developed, as relevant. proposals Stakeholder feedback and our response Alignment Many comments referred to the interactions between other reports (eg, TCFD disclosures, PRI reporting, TPT, ISSB, SFDR) and requested that information is aligned with, replicated or cross-referred from those reports. Some also requested that we consider interactions between initiatives more broadly, including the Glasgow Financial Alliance for Net Zero (GFANZ), Race to Zero, and the UN SDGs. Some stakeholders considered sustainability reporting at entity- level may be premature and potentially burdensome, so suggested a phased introduction, waiting until there is more demand, or delaying until the ISSB standards are in place. Others called for ISSB standards to be adopted at pace or recommended that the timing for adopting ISSB standards does not impact the timing of SDR requirements. Some stakeholders asked how asset managers should use the We have referenced the ISSB, SASB and GRI standards as documents to consider when firms are determining the content of their disclosures. However, as the ISSB and GRI standards are designed for corporate reporting, we only envisage asset managers using the standards as a starting point when considering the types of sustainability-related information that would be decision-useful to clients and consumers. We do not expect asset managers to disclose each line item set out in these standards. These entity-level disclosure requirements are a starting point, setting the direction of travel from climate to wider sustainability- related reporting. We encourage the development of industry-led guidance which further specifies the types of information that may be useful for asset managers to disclose.
Other frameworks, such as the T askforce on Nature-related Financial Disclosures, may also

proposals Stakeholder feedback and our response Scope and content Stakeholders also sought clarifications on matters relating to scope (eg, thresholds calculations), interaction between product and entity-level sustainability reports, and matters relating to specific sectors, asset classes or sustainability topics. Some also suggested that we introduce additional requirements, such as disclosures on funding/lobbying of non-sustainable funds, and proportion of AUM We have not made any changes to the scope of these requirements or any further changes to the content. We continue to encourage smaller firms with under £5 billion AUM to produce disclosures voluntarily, and we will consider whether to amend the threshold as part of our post-implementation review of climate-related We have also made small amendments to clarify that both firms using labels and those using sustainability-related terms in their product names and marketing must include information on resources, governance and organisational arrangements relating to their sustainability objective and/or investment policy and strategy, as relevant, in their sustainability entity report. Summary of entity-level disclosure • Consistent with the TCFD’s (and ISSB’s) 4 pillars, firms are required to disclose their governance, strategy, risk management, and metrics and targets in relation to managing sustainability-related risks and opportunities . • The TCFD’s supplementary guidance for asset managers, IFRS sustainability disclosure standard (IFRS S1), the SASB Standards and GRI Standards are documents that may be relevant for firms to help determine what to disclose. • Where firms use labels or sustainability-related terms in their product names and marketing, they must also include details on their resources, governance and organisational arrangements in relation to those products . • All firms with over £5 billion AUM must make these disclosures annually in a sustainability entity report, which builds from the TCFD entity report . • Firms can cross-refer to disclosures made in a group, parent-level or other relevant report, provided the information is clearly signposted and other cross-referencing

9.1 Distributors have a significant role to play in communicating sustainability-related information to consumers along the investment chain. We proposed that distributors (such as financial advisers and platforms) must ensure the labels and consumer -facing disclosures are made available to retail investors. We also proposed that distributors must place a prominent notice on overseas products, alerting retail investors that the product is based overseas and is not subject to the UK labelling and disclosure requirements. Do you agree with our proposals for distributors? If not, what alternatives do you suggest and why? 9.3 Most stakeholders broadly agreed with our proposals. We summarise the feedback and proposals Stakeholder feedback and our response Stakeholders asked for clarification on practical considerations, such as where and how distributors should provide retail investors with access to the labels and disclosures (particularly where distributors do not have a website). They also asked us to clarify the interactions and division of responsibilities between distributors and other firms, such as manufacturers and portfolio managers, as well as how to treat adviser-arrangers or advisers that build We have made an amendment to clarify that distributors can communicate the labels and consumer -facing disclosures (for both labelled products and products using sustainability-related terms without a label) using the channel that they would ordinarily use to communication to their customers if they do not use websites, mobile apps or another digital medium. We have not added any further prescription regarding practical considerations, as these are likely to vary among different distributors. We remind distributors of their existing requirements, including those in the PROD Sourcebook and under the Consumer Duty, as relevant. The final rules in Appendix 1 clarify which rules and guidance apply in respect of firms that are ‘distributors’ and firms that are fund ‘managers’. proposals Stakeholder feedback and our response We did not receive many comments on the notice for overseas products. Some stakeholders asked whether firms could use the labels voluntarily for overseas funds. Separately, some queried whether distributors are best placed to determine whether overseas funds are eligible for a label. Our consumer research found that consumers consider the notice to be clear and helpful (see Box 1). We have made a small amendment to the notice for overseas products to change ‘FCA’ to ‘UK’. This is to avoid any potential misconception among consumers that the FCA has approved the labels on products that use them. We provide information on the regime for consumers in our consumer -facing webpage. We have clarified that distributors must ensure the notice is placed on overseas products by 2 December 2024. Advisers Some comments focused on the role of advisers within the overall regime. Some stakeholders asked us to introduce or clarify suitability rules as soon as possible. We also received several suggestions for matters to take into account or clarify. This included whether advisers are expected to understand the labelling regime, qualification requirements, interaction between existing rules and expectations such as MiFID II suitability and governance rules, or Know Your Customer expectations. We continue to explore how to clarify our expectations for advisers around taking sustainability matters into account in investment advice and suitability. We are conscious of the need to be proportionate given the different sizes of advisers. We plan to establish an independent working group for the advice industry to help build on existing capabilities in sustainable finance, including how the SDR and labels support their role. While the consumer - facing disclosures have been designed for consumers, they should also help advisers to better understand the sustainability characteristics of investment Summary of requirements on • Distributors must communicate the labels and provide access to consumer-facing disclosures to retail investors, either on a relevant digital medium for the product or using the channel they would ordinarily use to communicate information . • They must keep the labels and consumer-facing disclosures up to date with any changes that the firm makes to a label or the disclosures .
• Distributors must also include a notice on overseas products (ie, recognised schemes – including Exchange T raded Funds) to clarify that they are not subject to the UK sustainable investment labelling and disclosure requirements . • The notice must be (i) in a prominent place on the relevant digital medium, along with a link to the FCA webpage setting out more information for consumers, or (ii) communicated via the channel the distributor would ordinarily use . 10.1 We proposed to introduce the anti-greenwashing rule for all FCA-authorised firms. 10.2 We also proposed specific rules for UK asset management firms (ie, those managing Undertakings for Collective Investment in T ransferable Securities (UCITS) and AIFs, and carrying out portfolio management) and distributors of their products to help consumers navigate the market and make better informed decisions. 10.3 We stated our intention to expand the scope to other investment products in due course and that we will continue to work with HMT to consider options for how to treat Do you agree with the proposed scope of firms, products and distributors under our regime? If not, what alternative scope would you prefer, and why? 10.5 Stakeholders broadly agreed with the proposed scope, with some of the comments already captured in other chapters – including those in relation to portfolio management 10.6 We summarise the feedback and our response proposals Stakeholder feedback and our response General Stakeholders broadly agreed with the proposed scope. Some of the comments, including in relation to portfolio management and advisers, have been captured in other chapters. We are proceeding with the rules for UK funds as a starting point and intend to consult on applying the rules to UK portfolio managers in

proposals Stakeholder feedback and our response Overseas products While we did not seek views on whether overseas funds should be in scope, many stakeholders asked how these funds would be treated. Many also asked for these funds to be brought into scope at the same time as UK funds or as soon as possible, or through an opt-in mechanism. Excluding overseas funds was seen by some as potentially creating an uneven playing field and a competitive advantage for non-UK funds, as well as confusion for consumers who would receive different types of information depending on where a We have made some amendments within the rules to clarify that they only apply in respect of UK firms and products. However, we continue to work with HMT on the approach to overseas funds. Some stakeholders wanted a broader range of, if not all, investment products to be in scope. Several stakeholders suggested that the regime should apply to pension products at the same time as funds and portfolios, and asked how to treat pensions invested into a labelled fund, or whether they could opt in to the regime. We were also asked whether or when other types of product, such as a structured products, credit funds/leveraged finance, charity funds, sovereign wealth, products funding Voluntary Carbon Credits/ Markets (VCC/VCM) and others would be in scope. We will continue work to develop proposals for pensions products and insurance-based investment products in the medium term, engaging with the Department for Work and Pensions (DWP) and The Pensions Regulator (TPR). In addition, we are continuing our work to explore how to clarify our expectations for advisers regarding product suitability. We will continue to monitor developments to determine whether to expand the scope any further. The rules prohibit firms and products that are not in scope from using the investment labels. Where out -of-scope products are invested in products that use a label (eg, a pension product invested in a labelled product, or a mirror fund of an authorised fund), firms must comply with our anti-greenwashing rule and other existing requirements to ensure any marketing and communication about that product is fair, clear and not misleading. proposals Stakeholder feedback and our response Feeder funds Some stakeholders requested that feeder funds are brought in scope of the regime and able to use the labels, as feeder funds are We agree that feeder funds (including feeder AIFs, feeder UCITS, feeder Long T erm Asset Funds (LTA Fs) and feeder Non-UCITS Retail Schemes (NURS)) should be able to use the labels that their in-scope master fund uses. So, we have amended our rules to allow feeder funds to use a label where the predominant purpose of the feeder is to reflect the sustainability objective of the master fund. The feeder fund can only use the same label as the relevant master fund, and must keep the use of the label up to date with any changes the master fund manager makes. The feeder fund manager must also meet general requirements for use of a label such as use of the FCA graphic, record-keeping, and notifying the FCA and publication (see Appendix 1), and provide clients with access to relevant disclosures Feeder funds not using a label must only use the same sustainability- related terms in their name and marketing as their master fund and meet certain requirements – including providing clients with access to disclosures produced by the master fund, and adding the relevant statement to clarify that the product does not have a label and why. Fund of funds In addition to the feedback we received relating to portfolio management (see Chapter 3), stakeholders asked how the regime should apply to a ‘fund of funds’ (ie, a fund that invests in other funds). Some stakeholders commented that, as these are authorised funds, they should be treated as such. Our rules do not set out any specific requirements for a ‘fund of funds’. Where a fund in scope of the regime invests in other funds, those funds will be treated as ‘assets’.
The rules apply as usual to the authorised fund, so the firm can apply the labelling criteria and must make the associated disclosures, or comply with the naming and

proposals Stakeholder feedback and our response Other clarifications Stakeholders also • for closed-ended AIFs to be out of scope • clarification on whether listed investment trusts are in scope of naming and marketing rules by virtue of being listed, regardless of whether they have retail clients • clarification relating to how interactions between overseas funds or firms doing business in the UK, or UK firms or funds doing business • Closed-ended AIFs under regulation 7 4 of the Alternative Investment Fund Managers Directive (AIFMD) UK Regulation (ie, those that are closed-ended and make no additional investments after 22nd July 2013) are exempt from the definition of a • Listed investment trusts are in scope of the naming and marketing rules to the extent that the product is listed and marketing sustainability characteristics to prospective retail clients • Overseas funds and firms are not in scope. The rules only apply to UK firms and their UK-domiciled products marketed in the UK. Entity-level disclosure rules apply to UK firms, capturing their approach to managing sustainability risks and opportunities in respect of UK and overseas funds managed from the UK. Summary of firms and products in scope of the regime Firm Product Element of the regime general requirements for use of a label and qualifying criteria Product-level produce and publish consumer -facing, pre- contractual and ongoing product- • Listed unauthorised AIFs produce • Non-listed unauthorised AIFs requirements for use of sustainability- marketing, associated disclosures and

Firm Product Element of the regime Managers of feeder funds Feeder funds only permitted to use the label that the relevant master fund uses, and most of the general requirements for use of a label apply Product-level provide retail clients with easy access to the product -level disclosures produced by sustainability-related terms in naming and marketing that the master fund uses, provide clients with access to associated disclosures produced by the relevant master fund, and, where sustainability-related terms are used without a label, produce a statement Distributors All in-scope products Communicate labels and consumer -

Implementation and operationalising 11.1 In this chapter, we set out the feedback and our response on the implementation and operationalisation of the regime. 11.2 Our proposals sought to balance the need to move quickly to achieve our outcomes while giving firms sufficient time to prepare for the new rules. We proposed • the anti-greenwashing rule would come into force immediately; • labelling, naming and marketing, consumer-facing and pre-contractual disclosure requirements and rules for distributors would become effective 12 months after publication of the PS, and firms would be required to make the first ongoing product-level disclosures 24 months after publication ; • entity-level disclosures would be staggered with the largest firms making their first disclosures 24 months after publication of the PS. Do you agree with the proposed implementation timeline? If not, what alternative timeline would you prefer, and why? 11.4 We received mixed feedback on all of the implementation periods, some of which has already been captured in other sections – including timelines for bringing overseas funds, pensions and advisers into scope. We summarise the feedback received and our

proposals Stakeholder feedback and our response Implementation Some stakeholders agreed with the proposals, while some asked for the rules to come into force earlier. Some suggested a roadmap However, we also received some requests (mainly from firms) for us to allow more time for implementation. Stakeholders suggested that the anti-greenwashing rule should apply after 6- 12 months, and labelling, disclosures and naming and marketing rules should apply after 18-24 months. They cited reasons such as data collection and analysis, necessary shareholder approvals, and consumer notifications. Some suggested a phased approach for smaller firms or a gradual implementation that takes into account interactions with corporate reporting requirements to ensure data availability. Some stakeholders asked whether firms could use the labels earlier than 12 months after the publication of the PS and encouraged Some stakeholders also asked for clarity on the FCA’s process and timelines for approving changes to product documentation. Some suggested that firms could fast track the approval process through grandfathering clauses, or that some of the rules should be disapplied until FCA approval is complete. Some also noted that depositaries need sufficient time to review We are proceeding with a staggered implementation timeline that aims to balance the need to address potential harm as early as possible, while acknowledging the time firms of all types and sizes may need to operationalise the requirements. Our implementation timeline is outlined in T able 17 below. Reporting deadlines Some respondents asked for the reporting dates to align with either the calendar year, financial year or other reporting dates such Firms using labels may choose when, after 31 July 2024, to use a label and align their disclosures accordingly. For firms producing disclosures without labels, firms may choose to publish disclosures earlier than the 2 December deadline to align with their existing reporting periods, or change their reporting deadline after the first year of reporting (provided that there is no period of time left uncovered, publishing an interim disclosure or report where needed). Summary of implementation timeline Element of the regime Timelines Anti-greenwashing rule 31 May 2024 This gives all firms additional time to consider the guidance that we are consulting on Guidance Consultation (GC23/3) This allows firms that are ready to use labels earlier than 12 months after the PS is published to do so.
Consumer-facing and pre-contractual disclosures must be published at the same time as the label is first used, and relevant naming and marketing rules must be met Ongoing product -level disclosures must be either (i) published 12 months after the label is first used and annually thereafter, or (ii) provided to eligible clients on demand from 2 December Firms using sustainability-related terms without product labels This allows a 12-month implementation period to produce relevant disclosures and statements. Firms must still comply with the anti-greenwashing rule from 31 May 2024. Ongoing product -level disclosures must be The notice on existing overseas funds must be Firms with above £5 billion in AUM Entity level disclosures 2 December The rules apply to larger firms (asset managers with above £50 billion in AUM) first and to smaller firms (with above £5 billion in AUM) one

11. 5 We set out proposals for the operationalisation of product classification and labelling. We proposed that in-scope firms wanting to apply a label to their product must ensure they meet the qualifying criteria, make the associated disclosures, review categorisation annually, retain records of this, and notify investors if use of the label changes. Independent verification of labels would not be mandatory. 11.6 We also proposed requirements for the use of a graphic associated with each label and for firms to notify us via a dedicated mailbox when they use a label. We explained that the graphics would be trademarked and set out on the FCA website. Does our approach to firm requirements around categorisation and displaying labels, including not requiring independent verification at this stage, seem appropriate? If not, what alternative do you suggest and why? proposals Stakeholder feedback and our response Stakeholders broadly agreed with the proposals to display and use the graphic for products with a label. A few stakeholders raised specific questions, such as how the label should be used in non- digital mediums and whether consumers may interpret the graphic as being endorsed by the FCA. A few stakeholders also asked for more guidance on how firms should determine if they meet While we will still set out the labels on the FCA website and the ability to download the graphic will be connected to the notification process. For products that use a label, the graphic must be used when displaying the label and in the consumer -facing and detailed product-level disclosures. Firms can only use the FCA graphic. We recognise that it may not be practicable to use the graphic in all circumstances (eg, when communicating the label in non-digital mediums, or taking into account specific client needs or accessibility requirements). T o ensure consumers correctly understand what the labels represent, we will focus on consumer understanding through our communications and engagement, along with information on the

proposals Stakeholder feedback and our response We received little feedback on this proposal. However, comments included those seeking clarity on what information should be included in the notification and querying whether the notification would be covered by the existing process to submit an application/ Rather than a dedicated mailbox, we are introducing a form on our online notification and applications system for firms to notify us before using a label, or as soon as reasonably practicable after. The notification will include what label is being used, the start date, and the Product Reference Number (PRN). We will also require firms to notify us before or as soon as reasonably practicable after they revise or stop using a label, through the same form . The majority of stakeholders agreed with our proposals that independent verification of labelling would not be required at this stage, as this would be costly and potentially disadvantage smaller firms, and firms’ compliance teams would ensure labels are used appropriately. However, some stakeholders were concerned about the risk of firms incorrectly classifying products, and asked if this approach could be kept under review. While we currently do not require independent verification for use of labels, we will keep this under review. FCA role Some stakeholders asked for more clarity on FCA’s role and process, from how applications will be assessed at the authorisations stage, to supervision of the regime and our enforcement approach when rules We will apply our usual supervisory and enforcement approaches to the regime, as explained in Chapter 3. Summary of operationalising the regime • When using a label, firms must use the graphic prescribed by us. The ability to download the graphic will be connected to the notification process for use of a • Firms must use our online notification and applications system to notify us before, or as soon as reasonably practicable after using a label, or revising or ceasing to • Independent verification for using a label is not required. However , we will keep this under review. We will apply our usual supervisory and enforcement approaches . 12.1 In CP22/20, we provided a cost benefit analysis (CBA) for our proposals on the Sustainability Disclosure Requirements (SDR) and investment labels regime. 12.2 In this chapter, we set out how the costs and benefits presented in our consultation for our proposals have been revised due • the final policy, following updates made as a result of feedback received • feedback received on CP22/20’s CBA • updated firm and fund population data from this year • updates to our internal Standardised Cost Model (SCM) • our assessment of how our final rules are consistent with our secondary international competitiveness and growth objective. Do you agree with the proposed cost‑benefit analysis set out in Annex 2? If not, we welcome feedback in relation to the one‑off and ongoing costs you expect to incur and the potential benefits you envisage. 12.4 In this section, we summarise the feedback received on our original CBA, and our responses to the points raised.
We received mixed comments on the CBA which focused mostly on the size and categorisation of the costs, and the affected population,

proposals Stakeholder feedback and our response Some stakeholders said they expected the benefits to exceed the compliance costs of the regime, through the standardisation of information and helping to reduce greenwashing. A few stakeholders raised whether costs would be higher than benefits, and whether some of the benefits would be achieved. For example, without standardised KPIs, it may be difficult to achieve the level of consistency that can promote better informed capital allocation decisions. Some also asked whether the scope of the regime, which does not include overseas funds, could lead to some confusion for consumers and, in turn, limit the benefits. We have captured the likely benefits in the original CBA and do not consider these need to be updated in light of the feedback received. We have clarified in Chapter 5 that we are not prescribing KPIs, as firms will need to determine which KPIs are most appropriate for their products. We continue to work with HMT on the approach to overseas funds and are introducing the requirement for distributors to add a notice on overseas funds to inform consumers they are not subject to the regime. We continue to expect that many of the benefits will be indirect and will arise from a better functioning market over the long term. Some firms commented on the specific cost categories provided in the CBA, including that some looked lower than expected and should account for external legal, IT and consultancy costs. Some also felt that the regime could have disproportionate costs on smaller firms. Some stakeholders also felt that there may be additional burden on top of the EU SFDR requirements, and stressed that interoperability will be essential to Some stakeholders said they were not able to comment accurately on the CBA, as it was too early and difficult to assess the full impact of the regime. In our consultation, we set out the assumptions used in our CBA and the limitations of our analysis. The assumptions were based on feedback we received from firms who responded to our request for information and on internal FCA data. We acknowledged the costs faced by firms, including smaller firms, in meeting the requirements. Stakeholders that provided their own cost estimates largely based these on the cost of the SFDR, rather than on the proposed SDR regime specifically. As noted in the original CBA, SDR only requires sustainability-related metrics associated with the firm’s sustainability objective, while SFDR requires several other sustainability-related metrics, which we expect will result in higher data- related costs in comparison to SDR. We did not consider these estimates to accurately represent SDR-related costs and therefore have not updated costs in line with these. We acknowledge that firms using a label or sustainability- related terms will incur costs to produce the new standalone consumer-facing disclosure and detailed product -level disclosures. We aim to ensure our regime is compatible with SFDR to the extent possible and expect firms to leverage existing capabilities where possible. We have provided an updated mapping of requirements against SFDR in Annex 3.

proposals Stakeholder feedback and our response Some stakeholders sought clarity on whether external verification would be required in determining a credible standard for the Sustainability Focus label, as this could lead to considerable additional costs. We have clarified in Chapter 11 that external verification is not required for use of the labels and therefore have not accounted for these costs in our CBA. We have also clarified that independent assessment of the robust, evidence- based standard can by undertaken via internal processes or third parties. Many stakeholders felt the costs associated with the naming and marketing requirements were underestimated and needed to accurately reflect the costs of reviewing and updating documentation and marketing materials. We have made amendments to the naming and marketing requirements to allow the use of sustainability-related terms (instead of prohibiting these). These products must be accompanied by the same types of disclosures as a labelled fund. They must also include a notice clarifying that the product does not have an investment label and explaining why. We have updated the CBA analysis to reflect the one-off and ongoing costs associated with these A few stakeholders said that the rules would affect a greater number of funds than the estimated number of 450 and the CBA should be based on the total population of all funds using sustainability-related terms in fund documentation and marketing materials, as well as unauthorised funds and We use Morningstar fund data to estimate the number of funds and firms using sustainability-related terms that are likely to use labels or sustainability-related terms in their funds. This includes authorised funds that are using terms in their name and/or objectives. We acknowledge the affected fund population is likely to be greater, because the data source does not have full market coverage and the fund population could grow over time. T o ensure our estimates are based on the latest available information, we have updated our estimate using the same approach as the original CBA – as described below in the revised CBA. A few stakeholders also raised whether the costs associated with labelled funds, within the value for money framework, could lead to a higher ongoing We acknowledge that asset managers may incur higher compliance costs associated with labels. The extent to which firms may pass these costs on to consumers will depend on a number of factors, including supply and demand elasticities. However, firms have existing requirements in place for their assessment of value, to ensure they are delivering value to consumers as well as the requirements of the Consumer Duty.
proposals Stakeholder feedback and our response Distributors A few stakeholders suggested platforms may have to take further action that should be factored into the costs, such as updating systems to provide access to disclosures and changing their own material to reflect updates to the fund materials. It was also noted that the CBA did not estimate costs for small We expect distributors to already have processes and systems in place to provide information to clients and consumers, although we have factored in the costs of additional changes likely to be required as a result of this regime – including updating these existing systems. Our CBA includes costs to the total population of platforms based on our internal data. We estimate the size of the affected population of firms in order to use appropriate assumptions in our SCM on the scale of costs relative to firm size. We describe our approach in more detail below. A few stakeholders commented on the costs for the anti-greenwashing rule, including that some estimates appeared low, and we should factor in additional We have updated our cost estimations to include one-off costs to complete gap analysis to ensure their practices comply with the anti-greenwashing rule in addition to familiarisation costs. The Treasury Sub-Committee on Financial Services Regulation wrote to us in March 2023, asking us to provide a new CBA analysis that estimates the monetary and other costs to consumers of the proposals, including switching We have carefully considered this feedback, alongside the consultation feedback, when updating the CBA. The proposals are designed to give consumers better information to support their investment decisions and do not require consumers to switch, so the updated CBA does not include the monetary costs of consumers’ switching. Following the introduction of the regime, any choice to switch from an unlabelled product to a labelled one will be an individual consumer’s decision, and will likely be based on several factors, which may include consideration of 12.5 We have updated our CBA to reflect the final policy, the latest information on the affected population of funds and firms, and assumptions in our SCM. We have also carefully considered further impacts of our proposals in response to feedback. 12.6 We estimate the total one-off cost to industry to be approximately £204.8m and the ongoing annual cost to be approximately £34.2m. The costs have increased due to changes to the policy in response to stakeholder feedback and updating our assumptions to ensure our CBA continues to remain

• Revising the assumed increase in label uptake resulting from the introduction of a fourth mixed label in response to stakeholder feedback • Accounting for costs to assess any changes firms need to make to comply with our anti-greenwashing rule (gap analysis costs) in response to stakeholder feedback • An increase in the estimated number of funds using sustainability-related terms • Updated assumptions on the sizes of affected firms based on the latest available information. This is the key driver of overall cost increases • Updated assumptions in the FCA ’s standard assumptions (eg, salaries) in our SCM 12.7 T o consider the scale of costs to industry, we can compare them to the total assets under management (AUM) of in-scope firms. Our supervisory analysis using data submitted by asset managers estimates that there are approximately £11 trillion AUM in the UK’s asset management industry. The estimated total one-off costs of compliance are equivalent to 0.002% of the AUM of all asset managers in scope, whilst the estimated total ongoing costs of compliance are equivalent to 0.0003% of AUM of the same group of firms. Note that these firms are manufacturers of products distributed 12.8 We expect our updated policy will enhance the expected benefits set out in CP22/20, as we set out in the next section. In summary, we expect the following benefits to reduced harm from greenwashing and increased consumer protection, increased provision of standardised sustainability-related information, better informed capital allocation and asset pricing, and better labelling and transparency to help facilitate an orderly transition to a more sustainable future. 12.9 We expect the updates to our proposals will enhance these benefits through increased provision of standardised sustainability-related information which will enable consumers to better navigate the market and make more informed decisions. This is due to the introduction of the fourth label, increasing label uptake, and our revised naming and marketing rules allowing firms to use sustainability-related terms and to explain the sustainability features of the products through consumer and product -level disclosures. 12.10 While our cost estimates have increased in this updated CBA, we expect this policy to continue to be net beneficial. We expect benefits to scale accordingly due to the positive impacts of increased uptake of labels and improving the provision of sustainability-related information and ensuring sustainability claims are proportionate through our revised measures should help to protect consumers by reducing greenwashing and increasing the provision of standardised sustainability information along the investment chain. This should enable consumers to more effectively navigate the sustainable investment market and make informed decisions. We consider that the expected benefits and improved market functioning resulting from the introduction of the regime are likely to exceed the compliance costs over the medium and long-term. As explained in Chapter 3, we will be assessing and monitoring the expected outcomes and unintended consequences of the regime, and we will carry out a post -implementation review in 3 years. 12.11 In the next sections, we set out the revisions to our CBA based on our updated proposals – including the revised benefits, affected population and costs, and further impacts considered as part of our CBA. 12.12 Our updated policy responds to stakeholder feedback and we expect the final regime to enhance the benefits set out in our consultation. T o summarise, these benefits • Reduced harm from greenwashing and increased consumer protection.
T ogether , the anti-greenwashing rule, labelling, disclosure, and naming and marketing rules should help ensure firms are using sustainability-related terms appropriately and protect consumers from greenwashing. • Increased provision of standardised sustainability-related information. Introducing labels and consumer-facing disclosures should help consumers to better navigate the market, make more informed decisions and improve trust in • Better informed capital allocation and asset pricing. The disclosure requirements and labelling should help support a coordinated flow of information along the investment chain, improving transparency and helping markets to price assets more accurately and allocate capital more effectively. • Better labelling and transparency to help facilitate an orderly transition to a more sustainable future. More informed capital allocation and asset pricing should result in less exposure to abrupt market corrections. Clients and consumers should be better able to hold firms to account for their sustainability-related claims. 12.13 We set out below how we expect our updated policy will enhance these benefits. 12.14 We received feedback on our original naming and marketing proposals that prohibiting sustainability-related terms was too constraining and it would be difficult for firms to explain the sustainability features of the products and for consumers to navigate the market. In response to this, our final rules allow for sustainability-related terms to be used with consumer -facing and product -level disclosures. Our revised naming and marketing rules should enable consumers to better navigate the breadth of products across the sustainable investment market, beyond labelled products which are seeking positive sustainable outcomes. Consumers will be able to access consistent information using consumer -facing disclosures for both labelled and unlabelled products and make 12.15 In addition, introducing the ‘Sustainability Mixed Goals’ label requested by stakeholders ensures we are accommodating for products with mixed strategies that meet the criteria for a label. We consider this will increase overall label uptake. And with more funds using labels, there will be an increased provision of standardised sustainability-related information compared to our initial proposals. As a result, more firms will take a consistent approach to categorising their products, and consumers may be able to better navigate a wider range of products in the sustainable investment market. More consumers can also have increased confidence that a sustainable-labelled product is meeting certain criteria and can hold firms to account for their sustainability-related claims. 12.16 We have also revised our consultation proposal on consumer -facing disclosures, responding to feedback that it may be disproportionate to require firms to produce a standalone consumer -facing disclosure document for all products. The consumer research we carried out found that consumer understanding improved when sustainability information was in a separate document. We have sought to strike a balance with the research and stakeholder feedback, with our final proposals requiring a separate consumer -facing disclosure to be produced for labelled and unlabelled products using sustainability-related terms. This will allow consumers to more effectively navigate the sustainable investment market and make more informed decisions about their investments. 12.17 We expect these updates to generate further benefits to medium and long-term market functioning through increased provision of standardised sustainability-related information. The further improvements in standardisation should further promote a more structured approach to the consideration of sustainability-related features of investment products, and how sustainability-related risks and opportunities are managed at entity level. This should further support a coordinated flow of information along the investment chain, resulting in better assessment of sustainability-related risks and opportunities across the market. Better transparency should therefore help markets price assets more accurately and allocate capital more effectively. 12.18 We estimate the number of funds using sustainability-related terms is likely to be a minimum of around 630 funds compared to 450 funds in our original CBA (see section ‘Revised affected population’ below). This means we consider our proposals will enhance the benefits described above through provision of more standardised sustainability- related information for a greater number of funds. 12.19 We also expect the publication of our PS could help guide international work in this space, as other jurisdictions consider and develop their rules and guidance. This would promote improvements in the standardisation of sustainability-related information and minimise risk of greenwashing in global investment markets. We will continue to engage with other jurisdictions to encourage compatibility. 12.20 Following updates to the policy and to reflect the latest information on population size, we have updated our estimates for the affected population of firms. 12.21 We estimate the total affected population by filtering regulatory data (i) in-scope firms and (ii) firms offering in-scope products. A more detailed description of how the policy applies is presented below. The estimated population of firms in the three broad categories of firms is set out in T able 20 below. Note, the overall population of authorised firms has reduced since we completed our CBA in the consultation. T able 20: Summary of estimated population impacted by policy Asset managers 1 A In-scope • Sustainable investment labels • Consumer -facing product -level • Entity-level disclosures if AUM of B Expectations for distributors 5,504 All authorised firms 2 C Anti-greenwashing rule 45,608 T able 1. In this CBA, we refer to firms managing UCIT s or AIFs as asset managers. The total population of asset managers may include firms providing other activities such as wealth management or portfolio management services. 2. This population includes asset managers and distributors. 12.22 We then grouped the population based on how the policy applies so that we could estimate different sets of compliance costs for each group. For each population, we estimate the number of small (S), medium (M) and large firms (L) to use as a proxy for the scale of costs. These size classifications map to assumptions around compliance costs in our SCM. We discuss how these classifications relate to assumptions underpinning our costs in the section below, ‘Costs to firms’.
12.23 We describe below the approach we took to estimate the number of affected firms and their size for the three broad populations of firms A, B and C. This approach is broadly similar to the approach taken in our original CBA, although we have updated our population estimates using the latest data and information. 12.24 Population A is the population of asset managers that provide in-scope products. We estimate the total population A by filtering our regulatory data for relevant permissions and portfolios. We create 4 sub-populations for the purpose estimating compliance • Sub-populations we estimate the number of UK-based funds affected by the labelling and naming and marketing rules to be at least approximately 630. This related terms in their name or objectives (eg, ‘sustainable’ , ‘ESG’) and (ii) limiting the sample to funds that are actively marketed in the UK. This estimate is based on a sample of existing funds in Morningstar data which may not have full market coverage. The total funds affected will also change over time as new funds are launched. Therefore, we expect this estimate to represent a minimum. For the purposes of the CBA, we assume that 45% (sub-population A1) of the products (and corresponding firms) that currently have sustainability-related terms in their

names and marketing materials will use the investment labels under our rules, and the remaining 55% (sub-population A2) will be subject to our naming and marketing rules. The analysis is based on our supervisory knowledge and our assumptions of actions that firms may take. While this is the same approach as in our original CBA, we have updated our assumptions and re-run the analysis with the latest Morningstar data. We expect label uptake to be higher than assumed in the original CBA due to the changes we have made in response to consultation feedback, such as introducing the additional Sustainability Mixed Goals label, so we expect more funds to be eligible for a label. We assume this sub-population are • Sub-population This sub-population is comprised of the asset managers that do not use sustainability labels or sustainability-related terms, estimated by subtracting sub-population A1 and A2 from the total population A (all asset managers). We estimate the size of asset managers using internal data and supervisory analysis of the distribution of AUM across asset managers. • Sub-population This is the total number of asset managers with AUM of £5bn or more based on our regulatory data. We estimate the additional costs to this sub-population to produce entity-level disclosures that would be incurred in addition to costs for populations A1-A3. We estimate the number of asset managers of £5 billion or more AUM (on a 3-year rolling average) using our regulatory data on AUM (MIF003 reporting) at the last reporting date. 12.25 Population B is the population of distributors, including advisers and platforms, that distribute in-scope products. We estimate the total number of advisers (sub- population B1) and platforms (sub-population B2) by filtering our regulatory data for relevant permissions and portfolios. We estimate the number of S/M/L advisers based on supervisory analysis and we assume that all platforms are medium on average. The proportion of S/M/L firms has changed, as we have revised our assumptions with 12.26 Population C1 is the total population of authorised firms in scope of the anti- greenwashing rules. Population C2 is the population of authorised firms in scope of the anti-greenwashing rule, excluding asset managers and distributors in scope of other rules. We exclude these populations from our estimates specifically for the anti- greenwashing rule as the familiarisation and gap analysis costs related to the anti- greenwashing rule for asset managers and distributors are already included in our estimates for populations A and B. We estimate the number of S/M/L firms by deducting the number of S/M/L asset managers and distributors from the total S/M/L firms estimated in our SCM. The SCM uses underlying tariff base data to give each firm a rank among all firms that use the same tariff base (eg, annual income, gross premium income) and then takes each firm’s maximum rank (many firms use multiple tariff bases) to order firms. The top 250 firms are classified as large, firms from 251 to 1,750 as medium, and all the rest as small. 12.27 In T able 21 below, we provide a summary of the estimated firm population by sub-group T able 21: Estimated population impacted by policy for the purposes of estimating Asset managers, including wealth managers level, including disclosure of A3 Naming and marketing rules 33 A4 Entity-level disclosures Advisers 3 B1 Expectations for distributors 3 All remaining authorised firms managers using labels and sustainability-related terms is likely to be a minimum. As this population of asset managers is based on an estimate of the proportion of asset managers we assume to use labels for their fund, we cannot observe their size. We assume that the relevant costs for asset managers using labels or sustainability-related terms are equivalent to those for medium-sized firms in our SCM. 3. T able 1 (page 91) of the CBA in CP22/20 incorrectly labelled populations G and H (advisers) as large and medium. The cost estimations in the CBA were based on populations G and H being

Revised compliance costs to firms 12.28 Following updates to our estimation to reflect the final policy, feedback received and latest evidence, we now estimate the total one-off cost to industry to be approximately £204.8m and the ongoing annual cost to be £34.2m. 12.29 A summary of the estimated costs by the affected population of firms and policy is set T able 22: Estimated compliance cost to population in scope sub-group One-off costs Ongoing (annual) Advisers £128.3m £23k £9.2m £2k Platforms £6.3m £180k £0.2m £7k Tot a l cos t s £204.8m - £34.2m - T able 1. All costs are presented in 2023 values through this section. 2.
As entity-level disclosures are only required from December 2025 onwards (year 2), we discount this one-off cost at the standard government Green Book rate of 3.5%. 12.30 We have also revised our cost estimates in the consultation to reflect updates to the 12.31 We have introduced a fourth mixed label which has increased the number of firms we

12.32 Firms using labels for their funds will be required to notify the FCA of the name of the fund using a label, the date this label was first used and link to the product, using our online notification and applications system . This is instead of the original proposal in our consultation, which was for firms to inform the FCA of use of labels via email. Integrating the notification process into our online notification and applications system makes this process more efficient and simpler for firms. We continue to consider that the cost associated with making this notification will be minimal and is included as part of the 12.33 T o allow for more flexibility, sustainability-related terms are no longer prohibited and may be used in fund names and supporting materials if product -level and consumer - facing disclosures are provided. We estimate that the remaining population of firms with funds with sustainability-related terms currently (population A2) – that are not estimated to use labels (population A1) – will now incur costs to provide product -level disclosures. We have adjusted our estimates accordingly to account for higher ongoing costs to provide product -level disclosures. 12.34 While we intend to consult separately on portfolio management, we have not made adjustments to the estimated firm population in the CBA because firms carrying out portfolio management may also provide in-scope products and therefore will still be 12.35 We have also adjusted our existing assumptions for our cost estimations in response to feedback and to reflect the latest information. 12.36 As described above, following feedback to our consultation, we have updated our cost estimations to include one-off costs to firms to complete gap analysis to ensure their practices comply with the anti-greenwashing rule in addition to familiarisation costs. We still consider the additional ongoing costs to be minimal as we have sought to align the anti-greenwashing rule with our existing requirements and expectations, so firms should already have processes in place to ensure the information they communicate is 12.37 We have also updated our analysis to reflect updates to the underlying salary and firm size data our SCM made in early 2023. The remaining underlying assumptions underpinning inputs to the SCM remain the same as in our CBA guidance. 12.38 The broad categories of costs and the scale of costs are the same as outlined in the consultation. However, we have made some minor adjustments to reflect updates to • Asset managers that are not using labels or sustainability-related terms will not be required to produce consumer -facing disclosures and we therefore do not anticipate any IT changes would be required to comply with our proposals. IT - related costs have therefore been removed for this population. • Costs relating to asset managers removing sustainability-related terms have been removed, as our final policy allows asset managers to use these terms with product-level disclosures and consumer -facing disclosures. The estimated

costs to this new group of asset managers (A2) are broadly similar to those using sustainable labels. However , we expect costs relating to change, governance and IT projects to be lower , as firms will not need to operationalise labels. 12.39 Ta b l e 23 sets out the estimated average one-off and ongoing costs from our final policy. While a full description of the expected costs are set out in the CBA in CP22/20, we briefly outline the types of cost and key assumptions underpinning the calculations in Ta b l e 23 below for clarity. T able 23: Estimated average one-off and ongoing costs from our proposals, by cost regulatory analysis staff review familiarise themselves with the rulkes and 4/2/1 legal/regulatory analysis staff review the legal text is less complex than our other analysis staff review the policy legal/regulatory analysis staff bespoke training is required, with 2 hours of familiarisation time required after a training course As above, we estimate that L/M/S firms will need to provide bespoke training to 10, 5, and 1 staff

Firms will need to operationalise and ensure there is appropriate governance to ensure compliance. The cost of this will likely depend requirements. For example, firms using labels will need to review whether and how the criteria are met in respect of each product We estimate the project-length for each population using our SCM

Asset managers using labels will likely incur costs to update their IT systems to implement detailed and consumer-facing disclosures. We expect this to be a moderate sized IT change and base our cost sustainability-related terms will likely need to update their IT that these changes will require Some asset managers will likely need to make further updates to their IT systems to make entity- that large-sized managers will Advisers Distributors will likely need to that large distributors will spend 546 person-days on this project and medium-sized distributors will

Firms will likely incur ongoing costs to ensure continued compliance updating disclosures). We expect these costs to be most significant We estimate that these ongoing 12.40 We also consider further impacts as part of our CBA. 12.41 As we have finalised our policy, we are now able to make an assessment of the costs to the FCA to oversee this regime. We do not anticipate a significant increase in costs for the FCA. The regime will build on our existing supervisory approach and will be taken forward with existing resources, although the Fund Authorisations team will experience higher volumes of applications as firms make alterations to their existing funds or launch new funds.
We will also incur IT costs in developing and maintaining the notification form on our online notification and applications system, including processing the associated data. Indirect impacts to benchmark providers 12.42 We have considered the potential indirect impacts to benchmark administrators that may arise as a result of the SDR and labels regime. In particular, in relation to index- tracking funds, where the fund manager mirrors the name of the underlying index in the fund name. If an index name contains sustainability-related terms and does not meet the requirements under the regime, then it is possible that fund managers may ask benchmark administrators for the index name to be changed. 12.43 We did not receive specific feedback through the consultation on this, so we engaged with several benchmark administrators to explore the potential costs associated with changing the name of an index. The main costs are administrative costs, including changing names in systems and reports, and costs associated with consulting users, although custom

indices would not require users to be consulted. We did not receive specific cost estimates associated with these changes but these were described as not significant. 12.44 We also recognise that firms may choose to amend the name of the fund themselves if they have no contractual obligation to mirror the index name. In addition, benchmark administrators may themselves choose to make changes to index names, following the 12.45 The extent to which firms may pass any additional costs on to consumers will depend on a number of factors, including supply and demand elasticities. However, firms have existing requirements in place for their assessment of value, to ensure they are delivering value to consumers as well as the requirements of the Consumer Duty. 12.46 In the original CBA, we acknowledged that consumers may choose to switch products. There are a range of factors that could contribute to a consumer’s decision to switch, with sustainability outcomes being one of these factors. The regime is designed to give consumers better information to support their investment decisions and does not require consumers to switch, so the updated CBA does not include the monetary costs of Impact on international competitiveness and growth 12.47 We consider our regime is likely to promote the international competitiveness of the UK economy, in particular the UK financial services sector, and medium to long-term growth of the UK economy, through several mechanisms. 12.48 It should enable investors to have better confidence in identifying sustainable investment products and making informed purchases. This should boost trust and confidence in the UK sustainable finance market which, in turn, could increase sustainable investments. Better industry standards should help build upon the reputation of the UK sustainable finance market, maintaining its leading international position. Improving the integrity of the UK sustainable finance market should also encourage more firms to develop and market sustainable investment products which, in turn, may increase the size and liquidity of the UK market – thereby lowering costs and increasing productivity. Attracting sustainable investments and ensuring that they support a thriving sustainable economy is also a key element of promoting innovation – a key driver of long-term productivity growth and international competitiveness of the 12.49 We will monitor the outcomes we expect from our regime as per Chapter 3, where we set out what we will do to assess the effectiveness of our rules and the outcomes. We will also seek to monitor any unintended consequences of the regime. Principles supporting the regime In this section, as context we set out the rationale for the design of our Sustainability Disclosure Requirements and investment labels regime. With the overarching objective to design a regime that will ‘inform and protect consumers and improve trust in the market for sustainable investment’, our approach rests on 3 main 1. Navigating a complex landscape. The key components of the regime – including requirements related to product classification, labelling, naming and marketing, and disclosure – are designed to help consumers navigate among products with sustainability characteristics that have different objectives and investment strategies, providing consumers with information and tools they need to identify those products that best meet their needs and preferences. 2. Intentionality. T o help consumers understand products’ sustainability characteristics and whether a given product is pursuing positive sustainability outcomes, the classification and labelling of sustainable investment products are based on their sustainability objectives. 3. Clear and objective criteria. T o give consumers confidence in the sustainability characteristics of the products that they are offered, a product must meet clear , objective criteria to use a label and be able to include terms like ‘sustainable’ , ‘sustainability’ or ‘impact’ in its name. • Balance principles versus prescription – in a fast-moving and evolving market, our regime aims to strike the right balance between principles and prescription and avoid ‘codifying’ too much too soon; for instance, we have signalled that we expect over time to build out entity and product-level disclosure expectations as the ISSB develops further sustainability-related reporting standards. • Achieve international coherence – recognising that the UK is a global financial centre, the regime aims, as far as possible, to be interoperable with international standards and frameworks, as well as emerging regimes in other jurisdictions. We have provided a mapping between our regime and the SFDR in Annex 3. 1. Navigating a complex landscape. As set out in both DP21/4 and CP22/20, the market for sustainable investment is complex, and has grown rapidly. There are a wide variety of product types with different objectives, different investment policies and strategies and different sustainability characteristics. And the terminology used to describe them can be unclear, and inconsistently applied, interpreted or understood. T o help work towards a common understanding, a number of bodies and groups have characterised the different investment strategies and approaches observed in the market today. These include the Investment Association (2021), the Bridges Spectrum of Capital , and more recently the Global Sustainable Investment Alliance (2023). The different strategies and approaches • Screening.
Applying defined criteria or rules that determine whether an investment is permissible. Different sustainability-related screening approaches negative (undesirable criteria); positive (desirable criteria); ‘best-in- class’ (selection of certain criteria relative to peers); or norms-based (selection according to compliance with widely recognised standards or norms). • ESG integration. Ongoing consideration of ESG risks and opportunities within an investment analysis and decision-making process, to assess their implications for • Thematic investing. Selecting assets with certain defined sustainability characteristics, to access specified trends that may be, for example, medium to long term trends, regional or global. • Stewardship. As defined in the UK Stewardship Code 2020, published by the FRC, stewardship is the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries, leading to sustainable benefits for the economy, the environment and society. • Impact investing. Investing with the intention to generate a positive, measurable social and/or environmental impact alongside a financial return. A firm may apply the investment strategies and approaches above individually or in combination to deliver products that meet different consumer needs and preferences, including products that seek to achieve positive sustainability outcomes (also see different needs and preferences as • Risk management. Some consumers may wish to invest in products that seek to avoid downside risk to returns due to companies’ poor environmental or social practices. They may invest in products that adopt an ESG integration strategy. • Values. Some consumers may want to invest in line with their values. They may wish to avoid investing in companies that engage in activities they see as harmful to the environment or society. They may therefore invest in products that adopt a negative or norms-based screening approach. • Opportunities. For other consumers, the rationale for investing in a product with sustainability characteristics may be a positive one. The motive may be to capture commercial opportunities, in the belief that investment in companies with better environmental or social credentials will deliver better financial returns. They may invest in products that adopt positive or best-in-class screening strategies, or products that invest according to a sustainability-related theme, including products that are tilted towards desirable sustainability characteristics. • Positive sustainability outcomes. Or the consumer may want to invest in a way that contributes purposefully to positive environmental and/or social outcomes. Depending on their other preferences – eg, diversification, or the balance of financial and sustainability considerations – these consumers may consider products that place greater emphasis on certain strategies such as

positive or best-in-class screening strategies, products that invest according to a sustainability-related theme or products that pursue a positive, measurable environmental or social impact. Importantly, consumers’ investment beliefs are not mutually exclusive . The different approaches and strategies above reflect different consumer preferences, and there is no hierarchy between them. Some products may adopt a blend of the strategies and approaches, depending on the different financial and sustainability preferences that However, today we do not have a whole-of-market approach to classify and label products according to their sustainability objectives and characteristics. And we do not have a common framework for firms to communicate to consumers about their products’ sustainability objectives, their investment policies and strategies, and their performance against any sustainability-related targets. Our package of labelling, naming and marketing rules and disclosure measures aims to help fill this gap and to help address the risk of harm to consumers : • our labelling and classification regime is designed to help consumers identify products that are seeking to improve or pursue positive sustainability outcomes, and clarifies our expectations when firms use the terms ‘sustainable’ and ‘impact’ – see Principle 2, Intentionality , below • at the same time, our disclosure requirements and naming and marketing rules are designed to help consumers navigate investment products with other sustainability characteristics and find the information they need to navigate to a product that meets their preferences – see Investment product landscape , below T o qualify for a label, a product must have a ‘sustainability objective’ that is clear, specific and measurable and part of the product’s investment objectives. The sustainability objective is an explicit statement of intention to invest ‘with the aim of directly or indirectly improving or pursuing positive environmental and/or social outcomes’. This is the foundation of our classification and labelling approach. Contribution to positive environmental and/or social outcomes Positive environmental and/or social outcomes may be improved or pursued via a mix • contributions made by the assets in which the product invests (‘enterprise • contributions made by the investor’s activities, for instance through investor stewardship (‘investor contribution’)

Both contributions are critical. The firm’s disclosures should be clear about the sustainability characteristics of the assets in which its products will (and will not) invest in and how these link to the product’s objectives. The firm should also be transparent about the investment activities that it will undertake. In our consultation , we set out (in Box 3; p 25) 3 main channels or mechanisms by which an investor may plausibly contribute to positive outcomes for the environment and/or society. Broadly these investor stewardship and engagement; influencing asset prices and the cost of capital by ‘screening in’ assets that have desirable sustainability characteristics, and ‘screening out’ those that do not; and seeking a positive sustainability impact by allocating capital in accordance with a stated theory of change. We recognised that many, if not most, products will generate outcomes via more than one of the channels. Nature of the sustainability objective T o help consumers identify the products that align most closely with their preferences, the regime further distinguishes products by the nature of their sustainability objective. It also distinguishes among products according to whether they aim to achieve positive outcomes for the environment and/or society directly or indirectly.
• Some products will aim to pursue sustainability objectives directly ( Sustainability In the case of products that pursue sustainability outcomes indirectly, the regime further distinguishes between • that invest mainly in assets that are considered to be sustainable for the environment and/or society now ( Sustainability Focus ), and • that may not be sustainable now, but are on a path to improving their sustainability for the environment and/or society over time ( Sustainability Improvers ). A fourth ‘ Sustainability Mixed Goals ’ label applies if a mix of sustainability objectives (and approaches) is present in a product. So, importantly, all labelled categories aim to improve or pursue positive environmental and/or social ouctomes – not just Sustainabilty Impact products. Accommodating investment in assets that may not yet be sustainable for the environment and/or society, but are in transition to becoming more sustainable over time, is an important feature of the regime. Recognising such products within the regime can support a whole-of-economy transition to a more sustainable future. As noted in our consultation , identifying a ‘plausible link’ between the target characteristics for the product’s assets and positive outcomes for the environment and/or society does not of course mean that any positive sustainability outcome is certain. And the potential magnitude of any outcome will also depend on the particular facts and circumstances. For instance, the asset pricing/cost of capital mechanism may be stronger in less-liquid segments of the market. Further, robust methodologies to measure and attribute such outcomes are still being developed. 3. Clear and objective criteria Clear, objective criteria for the use of investment labels are essential to upholding the integrity of the regime and improving trust in investment products. The regime must instil a level of consumer trust that, when a product displays a label , it is genuinely pursuing a sustainability objective and equipped to do so. The consumer can be confident that the product’s investment policy and strategy, and the firm’s resources, governance, stewardship and its ongoing monitoring and disclosure of KPIs, are all aligned with delivery of that objective. Accordingly, a further key feature of the regime is a set of qualifying criteria that a product must meet in order to use one of the labels. These criteria comprise ‘general criteria’ that apply for all of the labels as well as certain criteria specific to each of the The criteria relate to (1) the product’s sustainability objective; (2) the investment policy and strategy for that product; (3) the KPIs that flow from the product’s sustainability objective; (4) the firm’s resources and governance; and (5) the firm’s investor stewardship. The criteria cover what firms must ‘do’ and most have associated information that the firm must ‘disclose’ in respect of the product and their approach. As observed in our consultation, the criteria are objective, rigorous and aim to ‘raise the bar’. At the same time, they provide flexibility to accommodate different sustainability objectives for continued evolution and innovation in the market within clear guardrails. In developing the criteria, we sought to build from and remain consistent with existing relevant expectations and requirements. These include those set out in our Guiding Principles, and the UK Stewardship Code 2020. stylised (not intended as definitive) categories of investment fund both with and without sustainability characteristics . It also illustrates the range of investment strategies and approaches – as introduced under Principle 1, above – that products may consider These investment strategies and approaches will typically be applied incrementally, either individually or in combination, and at differing intensities depending on the objective and investment policy and strategy of the product. In addition to applying any combination of the investment strategies and approaches, products in the ‘positive sustainability outcomes’ category must have a sustainability objective, to improve or pursue positive environmental and/or social outcomes, as part of their

products that may have a sustainability objective and meet other qualifying criteria for labelling, and those that do not (or choose not to use a label): • Products in categories to the right of the line may use one of the investment labels (provided they meet the general and specific criteria as set out in the rules), giving consumers confidence that the product meets the requirements of an investment product with sustainability objectives. These products must also produce consumer-facing and detailed disclosure s, setting out the information necessary to support a consumer’s investment decisions. • Products in the categories to the left of the line may have sustainability characteristics that are material to the product, but either do not meet the criteria for using a label or choose not to use one. However , firms using sustainability- related terms to describe those products must meet certain conditions in order to give consumers better information about the product's sustainability characteristics. The conditions include not using ‘sustainable’ , ‘sustainability’ or ‘impact’ in product names, producing consumer-facing and detailed disclosure s, and producing a statement to clarify that the product does not have a UK This approach should help consumers to navigate the landscape of products with sustainability characteristics in line with their preferences and receive consistent types of information to help them make informed decisions. Sustainability characteristics No sustainability objective/do not meet qualifying criteria or choose not to use a label Positive sustainability outcomes Sustainability objective/must meet other qualifying criteria to use a label Possible investment approaches … Values Opportunities Sustainability Negative/norms-based screening Positive/best-in-class screening Products in this zone have some sustainability characteristics. These products may use sustainability-related terms in their names – other than ‘sustainable’ (or similar) or ‘impact’ , provided they do not do so in a misleading way and meet other requirements set out in the rules, including that the firm make consumer-facing disclosures. Products in this zone have a stated intention to achieve positive sustainability outcomes (a sustainability objective).
Provided that they meet the qualifying criteria for a label, these products may use ‘sustainable’ in their product names – and ‘impact’ in the case of Sustainability Impact products – and must produce associated disclosures. Overview of SDR and labelling regime 1. This section provides an overview of most of our final rules and guidance. This aims to support firms in familiarising themselves with the overarching requirements and how they might be applied in practice. However , it is not intended to be comprehensive eg it does not include rules relating to publication or data requirements. Firms must refer to the final rules and guidance in Appendix 1. The examples and expectations on how certain areas of the regime (in particular the labelling criteria) might apply are for illustrative purposes only and do not include the level of detail or full criteria that would need to be met to qualify for a label . Firms must assess each of their products against 2. The aim of the labelling regime is to help consumers navigate the sustainable investment market. We are introducing 4 investment labels with sustainability objectives that aim to improve or pursue positive outcomes for the environment and/or society. 3. The labels aim to give consumers confidence • the product has specific a sustainability objective as part of its investment • the firm has committed to high standards (the qualifying criteria) to deliver on the 4. The labels represent different sustainability objectives and in turn different investment approaches to pursue those objectives. So, different products might invest in similar assets but have different labels depending on their objectives. 5. Products may aim to improve or pursue positive environmental and/or social outcomes • indirectly through investing in assets with sustainability characteristics that either meet (Sustainability Focus) or have the potential to meet (Sustainability Improvers) a robust, evidence-based standard of sustainability;

• directly through both the firms’ investment activities and sustainability characteristics of the assets (Sustainability Impact); or • both indirectly and directly (Sustainability Mixed Goals) 6. T o use a label, products must meet the general and specific qualifying criteria for each label. In addition, firms will need to meet specific requirements under the criteria and make associated disclosures. Disclosures are covered in a separate section of this Annex. Firms will also need to meet the general requirements for publication, notification and review of the labels, which are covered in 4.1 of Appendix 1. 7. Consistent with the Consumer Duty, where applicable, the criteria and associated disclosures provide a framework for firms to assess their products consistently and demonstrate that they are acting in good faith to support achievement of their product’s sustainability objectives. Consumers should be able to trust that the firm has committed to high standards to deliver on the sustainability objectives and hold firms to account. 8. The criteria accommodate products investing in different asset classes and those with different investment strategies. This includes both active and passive strategies, where for passive strategies the product tracks an index that aligns with the sustainability objective and meets the criteria. It also includes investments in derivatives, short selling and securities lending, where the firm can demonstrate how these align with the product’s sustainability objective. We provide more detail in Boxes 3 and 4 . 9. We have said that governance is an enabler of environmental and/or social outcomes, rather than an end in itself. So, products investing in assets with good governance alone would need to do more to qualify for a label. Similarly, investment strategies such as exclusions, negative screening, ESG integration or basic ESG tilts alone would not be enough to qualify for a label. 10. T o use a label, a product must meet the following 11. The product must have an explicit sustainability objective as part of its investment • aligns with one of the specific sustainability labels • is clear , specific, and measurable 12. SASB standards may be used to help determine the topics a retail client would associate with environmental and/or social outcomes. We have referenced these in our Handbook

Investment policy and strategy 13. The product must have at least 70% of its assets invested in accordance with the • those assets must be selected with reference to a robust, evidence-based standard that is an absolute measure of environmental and/or social sustainability, as applicable for each of the labels (see Box 2) • any other assets must not conflict with the sustainability objective 14. However, limited exceptions to meeting the 70% threshold • where products are designed to build their initial portfolio over time and therefore have yet to fully invest in assets, such as in the case of an L T AF , and • if a firm is carrying out its escalation plan or taking actions to meet the criteria on an ongoing basis (see the ongoing requirements section below). 15. Other The sustainability objective should represent what the product as a whole is aiming to achieve. 70% is however a minimum threshold for investing in assets that directly pursue the objective , acknowledging that the product may also invest in some assets for liquidity, risk or diversification purposes. Those assets may not have sustainability characteristics or may not pursue the sustainability objective, provided that they do not conflict with the objective. Box 2. Robust, evidence-based standard of sustainability Robust, evidence-based standard of sustainability The general qualifying criteria require that the product’s assets be selected with reference to a robust, evidence-based standard that is an absolute measure of environmental and/or social sustainability (referred to in short as the ‘robust, Firms should select assets using a methodology or approach that is applied in a systematic way, and that can be used for both determining the environmental and/ or social sustainability characteristics of the product’s assets and the ability of those assets to contribute to positive environmental or social outcomes.
The methodology or approach may be based on, or determined by, an authoritative body (eg, a government or regulator), industry practice (eg, a third- party data or analytics service provider) or a proprietary methodology (developed • robust, meaning that it will stand up to scrutiny • evidence-based , meaning that it is derived from or informed by an objective and relevant body of data or other evidence. The role of the robust, evidence-based standard – and the way it is applied in selecting the product’s assets – will differ according to the labelled • For Sustainability Focus, products invest in assets that are environmentally and/ or socially sustainable, determined using the standard • For Sustainability Improvers, products invest in assets that demonstrate their potential, over time, to meet the standard • For Sustainability Impact, products may, but are not required to, invest in assets with reference to the standard (depending on the investment strategy and theory of change for the particular product). There are different types of standards that may be used. Non-exhaustive • General environmental and/or social criteria. For example, the standard may set a minimum threshold for the percentage of revenue, or the percentage of expenditure on operations, capital or research and development associated with environmental or social matters relevant to the product’s sustainability objective. • Taxonomy-based. For example, the standard may directly reference an authoritative taxonomy relevant to the sustainability objective of the product, such as the EU taxonomy for sustainable activities, or the forthcoming UK Green • Emissions profiles. For example, the standard may set a minimum absolute threshold of GHG emissions or carbon emissions intensity for assets. Products may also be invested thematically , provided that the assets are selected with reference to a robust , evidence-based standard. For example, the standard may set a minimum percentage of revenue associated with activities that seek to improve or pursue positive outcomes relating to environmental and social themes (eg, clean energy, sustainable agriculture, forest regeneration, pollution prevention, water and waste management, social housing or diversity, equity and inclusion) and the firm may develop a proprietary methodology to select assets that meet the standard, in accordance with those themes. 16. The product must have KPIs that demonstrate progress towards achieving the 17. Those KPIs may measure either the performance of the product and/or individual assets towards achieving the objective. 18. Firms must take reasonable steps to ensure that any data used to meet the labelling requirements is accurate and complete (including through use of proxies and assumptions where appropriate). 19. Other We have not prescribed any KPIs for firms to use as the most relevant KPIs are likely to depend on the specific sustainability objectives for each product. However, we encourage firms to use industry frameworks and best practice to the extent relevant for their products’ sustainability objective. We will discuss this with the DLAG . In line with our proposed anti-greenwashing guidance, KPIs should deliver a fair representation of the product’s progress towards the objective and enable consumers to understand that progress, including through use of contextual and historical information. This is consistent with expectations under the Consumer Duty. 20. Firms must meet specific requirements in relation to using a label and ensure the product meets the general and specific criteria on an ongoing basis. The firm retains responsibility for compliance, including when delegating its activities. Sustainability objective, investment policy and strategy and KPIs 21. Negative outcomes. Firms must determine (and disclose) whether any material negative environmental and/or social outcomes may arise in pursuing the sustainability 22. Other Firms may identify negative outcomes that pursuing a positive environmental and/or social objective may result in through their risk management and due diligence processes when selecting the product’s assets. 23. For example, a firm may identify that its strategy focused on increasing the development of affordable housing (a positive sustainability outcome) may have a negative outcome for the environment, due to real estate construction impact. 24. Firms should consider their Consumer Duty requirements to act in good faith. They should consider what a reasonable consumer would expect in a labelled product in determining whether to invest in assets that they have identified as potentially leading to 25. Investment policy and strategy. Firms must also determine the product’s • investment policy for achieving the sustainability objective, and • investment strategy for what the product invests in, including, where appropriate, the timescales by which the product is expected to be fully invested in assets 26. Other The investment policy and strategy should provide sufficient information to enable clients and consumers to understand how the product is invested. This includes enabling them to distinguish between different investment approaches that may be used to pursue sustainability objectives (such as screening, thematic approaches etc). We also expect firms to consider the level of detail that would be decision-useful to include. For example, considering whether to disclose the types of environmental and/or social factors applied in positive or negative screens, and the proportion of the product the screen has been applied to. 27. Where relevant to its investment policy and strategy, firms should also explain how their use of derivatives, short selling and/or their securities lending policy aligns with or contributes to achieving the sustainability objective (see Box 4). 28. Independent assessment. Firms must obtain or undertake an independent assessment of the robust , evidence-based standard for sustainability to confirm that it is appropriate for selecting the product’s assets. The assessment can be obtained from a third party or undertaken by the firm, provided that it is independent from the investment process, and in either case, that the individuals responsible for carrying out the assessment are appropriately skilled. Firms will need to disclose the basis on which standard is considered appropriate and the function or third party (not naming individuals) that 29. Assets that do not pursue the sustainability objective.