The UK Financial Conduct Authority (FCA) released its final Policy Statement (final rules) on Sustainability Disclosure Requirements and investment labels (PS23/16) on 28 November 2023, together known as the UK SDR.1 This final set of rules updates the consultation paper issued in October 2022 and the original proposal of November 2021. Accordingly, the FCA updated its Environmental, Social and Governance sourcebook with the final rules in January 2024.2
The UK SDR introduces a set of sustainability-related product labels, product- and entity-level disclosures, an anti-greenwashing rule, and naming and marketing rules regarding sustainable investing for the UK. The current UK SDR is only applicable to UK-domiciled funds. Whether and how UK SDR could be expanded to also capture overseas funds, such as undertaking for collective investment in transferable securities (UCITS) funds domiciled in the European Union (EU), is still to be confirmed.
In April 2024 the FCA also published a consultation paper CP24/8 on extending the Sustainability Disclosure Requirements (SDR) regime to Portfolio Management.3 The proposals to extend the regime are primarily aimed at wealth management services for individuals and model portfolios for retail investors. In September 2024, the FCA informed, that it would publish a Policy Statement and further details about the implementation timetable for portfolio managers in Q2 2025.
The UK SDR builds on both the UK implementation of the Task Force on Climate‑related Financial Disclosures (TCFD), which came into effect in April 2022, and the FCA’s “Dear Chair Letter” from July 2021 that addressed greenwashing concerns, warning firms against exaggerating the sustainable characteristics of their products and services and providing a regulatory framework to mitigate these issues.
The FCA’s stated goal for the UK SDR is to ensure that “financial products that are marketed as sustainable should do as they claim and have the evidence to back it up”.4 The sustainability labels are intended to clearly distinguish between products that can be considered sustainable and achieve a label, versus those products that refer to environmental, social and governance (ESG) characteristics in their name or marketing but do not use a label, and non-ESG products.
For products that meet the associated requirements and elect to opt into a sustainability label, the UK SDR offers 4 new labels, “Sustainability Focus”, “Sustainability Improvers”, “Sustainability Impact” and “Sustainability Mixed-Goals”. These sustainability labels aim to recognise different types of investment products based on their sustainability‑related objectives and features. Together with the associated disclosures, which apply at both a product and entity level, the labels are designed to give consumers the information they need to make informed choices with regards to which products meet their needs and sustainability preferences.