Remarks on UK’s proposed transition investment label

Our response to the UK Consultation Paper 22/20 – Sustainability Disclosure Requirements and Investment Labels

The UK Financial Conduct Authority (FCA) has proposed three sustainable investment labels (i.e., sustainable focus, sustainable improvers, sustainable impact) in the form of a consultation paper (link). Our response to the consultation builds on research originating from our ClimLabels project, financed by the German Ministry of Education and Research (BMBF). The project analyses transition labels in climate finance. Our technical input therefore focuses on the “Sustainable Improvers” label, its qualifying criteria (in particular Question 9), and how (retail) investment can support Paris-aligned transition pathways and the decarbonisation of high-emitting sectors.

To date, most efforts to align financial flows with the trajectory towards lower greenhouse gas emissions and the goals of the Paris Agreement, have focused on “dark green” sectors and economic activities. But there is also the urgent need to create and finance transition pathways of currently high-emitting sectors, if low-carbon technologies are available. Our main recommendations to improve the “Sustainable Improvers” label are the following:

• A clear reference to the Paris Agreement and the UK climate/ environmental targets creates the necessary ambition and prevents greenwashing.
• A reduction of the investable universe by excluding high-impact companies without transition plans increases the credibility of the label.
• Specific requirements for the engagement process for the manager of the fund improves the success rate of the stewardship process.

Picture credit: Dimitris Vetsikas