The Sustainability Disclosure Requirements (SDR) Framework

Zara de Belder

UK Service Line Lead

Alex McKay

Associate Director

Charlotte Buckingham

Principal Consultant

Paige Johnson

Senior Consultant

Contents

• Introduction
• Key aspects
• Who is impacted by SDR?
• What has been communicated so far?
• How does it interact with SFDR requirements?
• How can Anthesis support with SDR?
• Contact Us

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Introduction to the UK Sustainability Disclosure Requirements (SDR) Framework

The Financial Conduct Authority (FCA)’s Sustainability Disclosure Requirements (SDR) labelling regime came into effect earlier this year (May 2024) to tackle greenwashing, improve sustainability-related disclosure requirements and increase transparency for consumers, with the intention of reaffirming the UK’s position as a leading international hub for sustainable finance.

The FCA’s labelling regime forms part of the UK Government’s broader Sustainability Disclosure Requirements framework, developed based on global best practice and leading standards to facilitate and streamline the flow of robust, decision-useful information between corporates, consumers, investors, and capital markets. 

What are the key aspects of the FCA’s SDR labelling regime?

The objective of the SDR and labelling regime is to improve the trust and transparency of sustainable investment products, reduce greenwashing, and help consumers navigate the market for sustainable investment products.

The measures, set out in detail in the FCA’s Policy Statement (released in November 2023), include the following:

• Anti-greenwashing rule: The FCA’s anti-greenwashing rule requires authorised firms to ensure that any reference to the sustainability characteristics of a product or service is fair, clear and not misleading.
• Investment labelling regime: The FCA have introduced four voluntary investment labels with sustainability objectives that aim to improve or pursue positive outcomes for the environment and/or society. The labels may be used for investment products that meet certain qualifying criteria, as detailed in Annex 2 of the policy statement.
• Naming and marketing requirements for asset managers: The aim is to help consumers differentiate between products that have sustainability characteristics and use a label and those that have sustainability characteristics but do not use or qualify for a label. This includes requirements relating to the use of sustainability-related terms such as “green”, “climate”, and “social” in addition to any others that may imply a product has sustainability characteristics.
• Product-level disclosures: For products using a sustainability label or ESG-related terms in product names or marketing, asset managers must provide consumer-facing disclosures that provide consumers with information on the key sustainability characteristics of the product, and detailed product-level disclosures including via a fund prospectus and annual sustainability product reports aimed at institutional investors. Where a sustainability label is not used, this must be explained in a statement.
• Entity-level disclosures: Firms with AUM over £5 billion must produce an annual sustainability report that discloses how firms are managing sustainability-related risks and opportunities concerning products managed on behalf of clients and consumers. This allows clients and consumers to consider sustainability factors when granting mandates or selecting product providers. The disclosures must be produced in a format consistent with the four pillars of the TCFD and International Sustainability Standards Board (ISSB): governance, strategy, risk management, and metrics and targets for managing sustainability-related risks and opportunities.
• Distributors: Distributors such as advisers and platforms must communicate the label and consumer-facing disclosures to retail investors, e.g., by displaying the label prominently on the product webpage, and making up-to-date consumer-facing disclosures accessible. They are also subject to the anti-greenwashing rule. Additionally, they must provide a notice on overseas products to clarify that they are not subject to the UK sustainability disclosure and labelling regime.

Who is impacted by SDR?

The table below provides an overview of who is impacted by each aspect of the regime, and when they need to comply.

Requirement	Who is impacted?	Timeline
Anti-greenwashing rule	All FCA-authorised firms	From 31 May 2024
Naming and marketing rules	UK AIFMs and UK UCITS managers.	The FCA has recently announced that it will offer temporary flexibility to comply with this rule until 2 April 2025.
Voluntary labels	Available to UK AIFMs and UK UCITS managers.	From 31 July 2024.
Product-level disclosures	UK AIFMs and UK UCITS managers.	From 31 July 2024 for labelled products. From 2 December 2024 for non-labelled products with ESG terms used in naming or marketing.
Entity-level disclosures	UK AIFMs and UK UCITS managers with UK funds under management of £5bn or more (3 year rolling average, calculated annually).	For managers with AUM of greater than £50bn, first reports due 2 December 2025. For other in-scope managers, first reports due 2 December 2026.
Distributor rules	All FCA firms that “distribute” products in the UK to retail investors. The broad definition includes firms offering and selling products and, in addition, firms advising on products or making arrangements for their marketing.	For labelled products and non-labelled products that use ESG terms in naming and marketing, from 31 July 2024. For recognised schemes that use ESG terms in naming or marketing, from 2 December 2024.

The FCA has also introduced targeted rules for the distributors of investment products to retail investors in the UK and is considering widening the scope to include portfolio managers, pension and other investment products, and certain overseas funds.  A new consultation is expected to be launched imminently by the FCA on expanding the scope to include overseas funds as part of its Overseas Funds Regime roadmap (published in May 2024), with any legislative requirements expected to come into force in H2 2025.

What has been communicated so far?

The FCA finalised rules and guidance regarding its sustainability investment labels regime for funds based in the UK in its Policy Statement published in November 2023, while further consultation is required before new legislation is enacted for the other components. 

In January 2024, the Government announced its intention to issue a consultation in Q3 2024 on whether to broaden the scope of SDR to include funds under the Overseas Funds Regime.

In April 2024, the FCA published a consultation, which ran until June 2024, on extending the SDR and labelling regime to portfolio managers based in the UK. The FCA also finalised its guidance on the anti-greenwashing rule, following a consultation which closed in January 2024.

The Implementation Update, published by the previous UK Government on 16 May 2024, provided an SDR implementation update to reflect the rapid development of international standards, following the launch of the International Financial Reporting Standards (IFRS) Foundation’s International Sustainability Standards Board (ISSB) baseline standards.

On 9 September 2024, the FCA announced that the deadline to comply with the naming and marketing rules for investment products will be delayed to 2 April 2025, to allow more time for asset managers to ensure they meet the requirements.

How does the SDR labelling regime interact with SFDR requirements?

The SDR regime shares some features with the EU Sustainable Finance Disclosure Regulation (SFDR), and firms can leverage qualifying criteria and other information used in their SFDR reporting to meet SDR requirements. However, there are some key differences between the two frameworks, with key concepts such as “double materiality” and specific disclosure templates included in the SFDR framework, while the SDR introduces new sustainability labels and two levels of disclosure (consumer vs institutional).

How can Anthesis support with SDR?

1. SDR training:  We can provide bespoke SDR training to help FCA-regulated firms understand SDR, the different requirements of the regime, compatibility with other international regulations and frameworks (e.g. SFDR and SEC) and how it supports the UK’s target to reach net zero by 2050.
2. Managing green claims: Our team of consultants can support firms in developing a policy and governance framework to manage sustainability communications and ensure that claims are accurate and able to be substantiated. We can review existing claims or support in developing communications – from sustainability reporting to consumer-facing communications – that are truthful, assurable and substantiated.
3. Identification of sustainability risks and opportunities: We can help firms both identify and disclose their sustainability risks and opportunities, in line with TCFD, TNFD, GRI Standards, ISSB’s sustainability disclosure standards (IFRS S1) and Sustainability Accounting Standards Board (SASB) standards, to support with the development of their sustainability entity report. Our specialist consultants assist firms in identifying and disclosing their key sustainability topics, including their environmental and societal impacts. We also provide comprehensive guidance on governance, strategy, risk management, and sustainability-related metrics and targets, helping firms navigate both risks and opportunities.
4. Identify the sustainability objective of a sustainability product: We can use our expertise, with additional frameworks like SASB, to help determine the topics that a retail client could associate with sustainability characteristics.
5. Disclosure readiness review/gap analysis in preparation for labelling selection: We can review relevant existing documentation (i.e. sustainability objectives, investment policy and strategy, KPIs, governance structures, resources, and approach to stewardship) to conduct a gap analysis against the general and specific qualifying criteria for labels. We can develop a list of key actions, policies and procedures to support SDR alignment and annual requirements, with the creation of a bespoke implementation roadmap to prepare your firm for its labelling selection and demonstrate performance against the product’s sustainability objective.
6. Product and entity-level sustainability disclosure review: Anthesis experts can provide support and guidance to firms preparing their product and entity-level sustainability disclosures, reviewing for consistency with relevant frameworks such as TCFD and ISSB, performing benchmarking analysis and providing recommendations for improvement based on compliance and best practice.

Note: Firms must obtain or undertake an independent assessment of the robust, evidence-based standard for sustainability to confirm the appropriate product’s assets are eligible for SDR’s labelling criteria.