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Insights Page Header How The Fca S Updated Sustainability Disclosure Requirements Policy 1820X375

How the FCA's updated sustainability disclosure requirements policy statement (SDR) sets the tone for investment labels and criteria

There is a lot to digest in the Financial Conduct Authority’s (FCA) 212-page Policy Statement PS23/16 on Sustainability Disclosure Requirements (SDR) and investment labels.  To sum it up, it is based very much on last year’s consultation paper, but there is plenty of evidence that the FCA listened to the feedback to that paper.

Sustainability labels

Probably the most obvious difference since the consultation paper a year ago is that there will be four investment fund labels, instead of three. The same three labels will remain (but they now use the term “sustainability” instead of “sustainable”) while the new label, Sustainability Mixed Goals, is primarily for funds that straddle the existing categories of Sustainability Impact, Sustainability Focus or Sustainability Improvers.

Visually, the FCA has reinforced its line that no category is greener than any other by making the actual labels all monochrome. And, as before, the labels are optional, with no obligation on funds to adopt them.

Qualifying criteria

To qualify for a label, a fund must have a sustainability objective in addition to its financial objective, and an investment policy and strategy that refer to a “robust, evidence-based standard" that is an absolute measure of environmental and/or social sustainability. Firms must:

  • determine the KPIs they will use to measure the progress at a fund or underlying asset level;
  • have appropriate resources and governance procedures to manage the delivery of the sustainability objective; and also
  • describe the stewardship strategy (and escalation plan) they will adopt to support delivery of the objective.

All funds using the labels are subject to a minimum threshold of 70% of the assets meeting the sustainability objective of the label. Any assets outside this must not conflict with the stated sustainability objective, as they are expected to be used for liquidity or risk management purposes.

The FCA is not restricting what funds may invest in and has removed the need to disclose any “unexpected investments”, but funds will need to explain any assets held for reasons other than to meet the sustainability objectives, as well as any specific exclusions.

All labels require assessment to confirm that the standard adopted is fit for purpose."

This assessment may be conducted internally or externally but must be independent of the investment management process. Firms must review their use of a label at least annually and consider whether, given the sustainability of the assets or their progress towards a target, the fund should continue to use the label.

Specific criteria for each of the labels include:

  • Sustainability Focus – thematic investment will not, in itself, be sufficient to qualify for this label, but it may be used as long as the sustainability objective is to invest in assets that are environmentally and/or socially sustainable
  • Sustainability Improvers – this should not be seen as a “catch-all” label, but funds must aim to invest in assets with the potential to improve and meet a standard of sustainability. They must set a time period for either the fund or its assets to meet the standard and set short- and medium-term targets. The FCA does not specify how funds should treat assets once they have met their target.
  • Sustainability Impact – the requirements to invest new capital or to address market failures or underserved markets have been removed. The impact must be based on a theory of change and can be at the fund or underlying asset level. The escalation plan for assets not meeting their impact targets does not need to include divestment.

There are no specific qualification criteria for Sustainability Mixed Goals funds, but the assets must meet the criteria of each of the other labels and funds must disclose the percentage of assets that meet each of those labels.

Naming and marketing rules

Funds marketing to retail investors that do not qualify for a label but have sustainability characteristics may, after all, be able to use sustainability-related terms, but they must ensure they accurately describe those characteristics. Unlabelled funds using such terms must produce a statement clarifying that it does not have a label and why.

The exception to this relaxation is that only labelled funds may use the words “sustainable” or “sustainability”, and only funds with the Sustainability Impact label may use “impact” in their names.

All firms must comply with the anti-greenwashing rule, which takes effect at the end of May 2024."

However, firms may use terms in factual, non-promotional statements about a product or to describe specific aspects, such as in macroeconomic commentary.

As with all the rules in the policy statement, these apply only to UK authorised firms and funds, and the FCA is working with HM Treasury on what to do about overseas funds sold into the UK.


There are three different disclosures that funds must make if they adopt a label or use sustainability terms in their names or in marketing and there are also entity-level disclosures.

  • Consumer-facing – as a change from earlier proposals, funds with no sustainability term in their name or marketing do not have to produce these standalone disclosures, which must be prominently displayed online alongside other key information. The FCA is not prescribing a template, but when printed, it must be no longer than two pages.
  • Pre-contractual – these must be in the prospectus or prior information document or, where neither of these exists, form “Part A” of a sustainability product report. While these do not need to be updated annually, they should be updated without delay if the fund changes or ceases to use a label.
  • Ongoing – these make up “Part B” of a sustainability product report and may cross-reference to other relevant information. These must disclose information associated with the criteria of the labels, where applicable, as well the metrics or KPIs used and describe progress towards a target.
  • Entity-level – based on the four pillars of the TCFD recommendations, firms must disclose their governance, strategy, risk management and metrics and targets around managing sustainability-related risks and opportunities. They must also disclose their impact on the environment and/or society based on the Global Reporting Initiative (GRI) standards. As with the TCFD-aligned disclosures, these disclosures will be implemented in a staggered fashion, depending on firms’ assets under management. Firms with sustainable funds (whether labelled or using terms in their names or marketing) must disclose details of their resources and governance arrangements.

Financial advisers and platforms

While the FCA acknowledges the important role played by advisers in presenting sustainability information to retail investors and helping them make the right investment choices, there are no specific rules aimed at them at this stage.

Instead, the FCA will set up an independent working group to help it build on the rules and determine how these rules and fund labels and disclosures support them in their role.

In the meantime, advisers and platforms must ensure that the labels and disclosures are made available to investors.

Platforms must also place a notice on all overseas funds made available to retail investors in the UK to make it clear that they are out of scope of the UK’s labelling and disclosure requirements.

The timeline: Implementing SDR

First to take effect will be the anti-greenwashing rule, which comes in on 31 May 2024. Until 26 January 2024, the FCA is consulting, through GC23/3, on the guidance around that rule.

Firms may start to use the investment labels on their funds from 31 July 2024 and, if they do, they must make the necessary consumer-facing and pre-contractual disclosures and apply the naming and marketing rules from then. The naming and marketing rules apply to others from 2 December 2024, by when funds with sustainability-related terms but no labels must publish consumer-facing and pre-contractual disclosures. The ongoing product-level disclosures must be published a year after the first pre-contractual disclosures, i.e. between 31 July and 2 December 2025. Eligible clients may also request on demand ongoing product-level disclosures from 2 December 2025.

2 December 2025 is also the deadline for the first entity-level disclosures, for those firms with more than £50bn in assets under management. Firms with between £5bn and £50bn follow a year later, on 2 December 2026.

As long as this article is, it only scratches at the surface of the new rules. Further articles will follow in the lead-up to the implementation dates, with more details on specific aspects of the rules.

To discuss how FE fundinfo can help asset managers and distributors with the implementation of SDR and its disclosure requirements, contact us now.