At Square Mile, we actively engage with market participants, providing input on incoming regulations. We are delighted to share our response to the FCA's recent discussion paper, DP21/4: Sustainability Disclosure Requirements (SDR) and investment labels. This discussion paper seeks to identify initial views on SDR and the suggested labelling system for sustainable investment products.

You can find our full response here, but a summary of our key points can be found below:

• Although consumers are becoming more informed, there is still widespread confusion. We would suggest the two-tiered approach is acceptable providing it is easily accessible using a common language and standard set of definitions.

• We believe that all firms and products should be in scope of the requirements for labels and disclosures regardless of size, objective, or intention.

• We believe there to be several issues with the labelling and classification system as it currently stands. The principal one being that we do not believe the labels to be accessible or helpful to consumers. For example, terms like ‘transitioning’ and ‘aligned’ are not commonly used, and provide no true context as to what consumers can expect from a fund.

• The term “responsible” is inconsistent with the other categories and provides no context as to how the use of the term will be qualified, the use of the term ‘not promoted as sustainable’ is not a helpful term for consumers to give clarity in terms of what they can expect.

• The labelling system as it currently stands does not account for the very established market of ethical exclusions funds which we believe is a material oversight.

• We would suggest reframing the labels to something similar to the definitions which align to the ‘Spectrum of Capital’. We have road tested these terms with hundreds of advisers who are using the document with their clients to help explain the various investment options in this area.

• We believe that everything should be incorporated into the most used piece of collateral; the fund’s factsheet. However, we would say that there needs to be greater consistency of application, and should be framed using a common language to allow ease of comparability.

• All market participants have a role to play in communicating sustainability-related information, provided that we are all using a shared language and/or a standard set of definitions.

The FCA are now in the process of collating the feedback they received on this discussion paper, which will inform the development of policy proposals for consultation in Q2 2022.