Over 1,000 UK Funds in Race to Comply with 2 December Deadline for SDR

New data from FE fundinfo highlights the scale of task for UK funds to meet the Sustainability Disclosure Regulations (SDR) requirements for naming and marketing of funds.

London, 5 September 2024 – New research from FE fundinfo, a leading financial data company, reveals the scale of the challenge facing the investment industry to comply with the UK’s Sustainability Disclosure Regulations (SDR), ahead of a major deadline on naming and marketing of funds on 2 December 2024.

The research showed that 1,213 UK funds with sustainability-related terminology in their names will need to comply with these stringent requirements for SDR. The data was sourced from FE Analytics, FE fundinfo's fund research platform.

The 1,213 ‘sustainable’ UK funds that need to comply with the 2 December SDR deadline, cover Exchange Traded Funds (ETFs), IA Unit Trusts, Open-Ended Investment Companies (OEICs), and Investment Trusts. Other funds, including offshore funds, will come into scope later.

Out of the funds in scope for the 2 December deadline, 48% are ETFs, 51% IA Unit Trusts/OEICs, and 1% Investment Trusts.

The 1,213 funds were analysed against the more than 12 “sustainability-related terms” set out by the FCA that meant a fund needs to comply with SDR:

• 30% have ‘sustainable’ in their fund name.
• 45% are marketed with ‘ESG’.
• Other key phrases include ‘Climate’ (86 funds), ‘Green’ (40 funds), ‘Responsible’ (32 funds), ‘Social’ (26 funds), and Transition (23 funds).

By 2 December 2024, all these funds will need to ensure they are compliant with the SDR’s rules.

The 2 December deadline concerns the naming and marketing of investment products. From this date, FCA-authorised firms will only be able to use sustainability-related terms in the naming or marketing of a fund if they meet strict guidelines. These cover a range of areas including anti-green washing, the sustainable character of a product (at least 70% of Assets Under Management need to be sustainable), and disclosures about the sustainability of the fund.

FE fundinfo found 416 UK funds in total had ‘Sustainability’, ‘Sustainable’ or ‘Impact’ in their names. These funds face an extra level of compliance for 2 December: the SDR’s labelling regime. There is growing industry anxiety at the low initial uptake of the investment labels (Sustainability Focus, Sustainability Improvers, Sustainability Impact, and Sustainability Mixed Goals). These were brought in to simplify how sustainable investing was governed and communicated transparently to investors. Naming and marketing requirements will apply to both labelled and unlabelled firms.

Dr. Matthias Breier, Head of ESG Product at FE fundinfo, said: “The clock is ticking for UK funds to meet the December deadline. Getting these labels is a tricky process, with only a few funds able to do so at present. We are likely to see some movement in the ESG market over the coming months, as some firms will have to rebrand or reposition their funds if they cannot comply in time.

“Firms need to be engaging with compliance right now. Rather than thinking about it as a 2 December deadline, everything needs to be wrapped up in early October to ensure investors receive all the necessary disclosures in the required 60 day window.

“These regulations are designed to combat greenwashing by ensuring that funds marketed as sustainable truly embody those principles. Firms that successfully align with the SDR will not only meet the regulatory standards but also position themselves as leaders in a market that increasingly values transparency and integrity.

“When fund managers embrace these requirements, they actively drive the evolution of sustainable investing and contribute to a more accountable and impactful investment environment.”

*Editor’s Note: This research analysed over 28,000 funds being marketed in the UK, focusing on Exchange Traded Funds (ETFs), OEICs, and Investment Trusts. The data collection took place in August 2024, examining the use of ESG-related terminology in fund names ahead of the upcoming Sustainability Disclosure Regulations (SDR) deadline on 2 December 2024.