The UK's Sustainability Disclosure Requirements (SDR) are designed to increase transparency and accountability of sustainability in the financial markets.

There is a focus on investment products, with a requirement for firms to disclose information about sustainability aspects while preventing "greenwashing" through strict labelling and marketing rules.

The SDR introduces measures to inform and protect retail investors and to improve trust in the market for sustainable investments. It is also designed to help professional or institutional investors.

The government’s “Sustainability Disclosure Requirements: Implementation Update 2024” document provides stakeholders with a summary of SDR within the financial services sector and the wider economy. Regulations are primarily managed by the UK Financial Conduct Authority (FCA). (1)

The FCA finalised its SDR and investment labels regime for funds based in the UK, with the release of a policy statement on in November 2023. The SDR measures include investment labels, naming and marketing rules, an anti-greenwashing rule for all FCA-authorised firms, and disclosure rules. Authorised Fund Managers (AFMs) will need to identify and mitigate any greenwashing risks as soon as possible.

The anti-greenwashing rule came into effect on May 31st 2024 and other elements are being introduced in stages. Implementation phases:

• July 31, 2024: Firms able to use voluntary sustainability labels for their products.

• December 2, 2024: Full naming and marketing rules regarding sustainability terms took effect.

• From June 2025: Full implementation. Detailed disclosure mandate:  Obligations on product-level and entity-level disclosures come into effect for firms with more than £50 billion Assets Under Management (AUM).

• December 2026: Entity-level disclosure requirements for firms with AUM of more than £5bn enter into force. (1)

The SDR builds on global best practice and leading standards aiming to streamline flow of robust, useful information between corporates, consumers and investors and capital markets. It delivers on one of the previous government’s key commitments in the 2023 Green Finance Strategy, to provide industry with clear information, timeframes, and milestones for each of the core elements of SDR.

Five key elements of SDR

1. Goal: Provide investors with clear and comparable information on the sustainability profile of investment products, helping them make informed decisions based on environmental, social, and governance (ESG) factors.

2. Anti-greenwashing rule: Ends misleading claims about the sustainability of financial products, including restrictions and criteria on terms like "green" or "sustainable".

3. Sustainability labels: Voluntary labelling system for firms to categorise products as "Focus," "Improvers," "Impact," or "Mixed Goals" based on sustainability objectives.

4. Naming and marketing rules: Restrictions on how firms can name and market their investment products, especially when using sustainability-related terms.

5. Disclosure requirements: Firms must disclose detailed information about sustainability strategies, investment processes, and how they integrate ESG factors into decision-making. (2)

SDR applies to:

• Firms regulated by the Financial Conduct Authority (FCA) under the scope of the “anti-greenwashing” rule.

• Any investment fund operating within the UK

• Companies that have their shares or bonds listed on a UK regulated market

• UK-based investment managers        

• Pension products providers

• Distributors of in-scope investment products (platforms and financial advisers who play a crucial role in guiding investors). (2)

The SDR has a detailed list of financial institutions under compliance rules, including:

• Pension funds

• Undertakings for collective investment in transferable securities (UCITS) 

• Alternative investment fund managers (AIFM) 

• Authorised funds and investment trusts (2)

All products using a label or using sustainability-related terms in naming and/or marketing must include sustainability information in pre-contractual disclosures. A product-level disclosure is needed every 12 months from when a label or terms are used.

While funds can voluntarily opt to use a label, disclosure for products with sustainability-related terms in their names and marketing must include a statement to clarify that the product does not have a label.

Firms should also disclose through Key Performance Indicators (KPIs) whether pursuing a positive sustainability focus could result in negative outcomes. They should also identify, disclose and explain any other assets, such as cash or derivatives, held in the product for other reasons.

Entity and product-level disclosures will build on the existing Task Force on Climate-Related Financial Disclosures (TCFD) structure, requiring disclosures on governance, strategy, risk management, metrics and targets.

International standards

The SDR has been designed to adhere to international standards, such as the IFRS Sustainability Disclosure Standards but while taking a global perspective, it has specific provisions to address needs of the UK market and stakeholders.

The government hopes that the SDR will be a catalyst for companies to develop sustainable practices, using green technologies and align business strategies with global sustainability goals.

SaveMoneyCutCarbon’s view is that the SDR is a wide-ranging and unified framework that directs companies and financial institutions to disclose positive and negative impacts on the environment and society.

The SDR melds multiple layers of sustainability-related reporting requirements in a single, robust model. This should help to stimulate easier understanding of climate-related data, along with better comparisons and accountability.

Bibliography

1‘Sustainability Disclosure Requirements: Implementation Update 2024’ (Accessed February 2024) https://www.gov.uk/government/publications/sustainability-disclosure-requirements-implementation-update-2024

2‘Sustainability Disclosure Requirements (SDR) and investment labels’ (Accessed February 2025) https://www.fca.org.uk/publication/policy/ps23-16.pdf