In February 2024, we shared an article on policy statement PS23/16 Sustainability Disclosure Requirements and investment labels, published by the Financial Conduct Authority (FCA) on 28 November 2023. The article included information on the new sustainability provisions and a summary of six new requirements which included: anti-greenwashing, rules for investment products, labelling, additional disclosures, and requirements for distributors.

In an effort not to delay the anti-greenwashing rule, the FCA announced a phased implementation timeline for the new rules. 

What we have seen in relation to the anti-greenwashing rule?

The anti-greenwashing rule came into effect from the 31 May 2024 and applies to all FCA regulated firms. We have not seen any enforcement action yet but anticipate that it will continue to be an area closely monitored by the FCA, and indeed a late 2023 Freedom of Information Request to the FCA confirmed that one greenwashing investigation was underway.

In a freedom of information response to ClientEarth, an environmental law organisation, the FCA disclosed that it opened its first enforcement investigation into a company over climate-related issues in July 2023. The FCA did not provide any clarity on the type of firm or specify the breach that it was investigating. With the regulations now in force, it is possible we will see an increase in these investigations, but perhaps not for a while. Publications by the FCA suggest that it will take an average of forty-three months for investigations to be closed. 

Action point: Firms should continue to monitor their communications, literature, publications, and disclosures to ensure they are compliant with the anti-greenwashing rules. 

The SDR investment label adoption process 

To recap, there are four investment labels under SDR for products with sustainability objectives that aim to improve or pursue positive outcomes for the environment and/or society. These have been available since July 2024 (with accompanying disclosures) and are:

• Sustainability Impact (“Impact”);
• Sustainability Focus (“Focus”);
• Sustainability Improvers (“Improvers”); and
• Sustainability Mixed Goals (“Mixed Goals”).

If an asset manager decides to label a product, the manager remains responsible for that and must notify the FCA of its intention to use, revise, or cease the use of, that label. While the FCA may review and challenge the use of it, it will not formally approve or endorse the use of the label.  

However, if a firm is updating its pre-contractual disclosures to use a label or to meet the naming and marketing rules (detailed below), it will need to submit these updates to the FCA before starting to use the label, or before the naming and marketing rules take effect. 

To help the industry in their adoption of SDR labels, the FCA recently published an updated good practice guide showing illustrative examples for all the SDR labels to showcase how firms can meet the SDR pre-contractual disclosure requirements. These examples are based on the FCA’s experience of firms’ applications to date.

Action point: Firms considering using one of labels should review the good practice guide and factor this into its approach. 

Extension to the “Naming and marketing” rules compliance date:

The naming and marketing rules apply to UK firms and their UK-domiciled products marketed in the UK, where the product doesn’t use one of the four labels but uses sustainability-related terms. Firms within the scope of these rules must produce the same types of disclosures as are required for labelled funds. 

In September, and in response to firms and trade bodies’ feedback, the FCA permitted limited temporary flexibility for firms to comply with the naming and marketing rules until 2 April 2025. 

Firms wishing to utilise this extension must have applied to the FCA for approval of amended disclosures by 1 October 2024; and be using one or more of the terms “sustainable”, “sustainability” or “impact” (or a variation of those terms) in the fund name, and be intending to either use a label, or to change the name of that fund (to remove the use of such term). 

Where firms can comply with the rules without requiring this flexibility, they should do so and the FCA also expects firms to comply as soon as they can. Firms should also remember that they must comply with existing anti-greenwashing rules at this time. 

Market response 

In H2 2024, firms’ frustrations with the FCA’s review process when submitting the relevant disclosure documentation in respect of using an SDR label were well publicised. 

Our end of January 2025 view of SDR label adoption across the industry is as follows:

• A few asset managers (such as Vanguard, LGIM and Stewart Investors) have dropped “sustainable” from their fund names, stepping away from SDR labelling.
• There has been a steady flow of announcements over the last few months publicising the adoption of, or plans to adopt, the “Impact”, “Focus” or "Improvers" SDR labels for over fifty-five external investment trusts and funds. 
• Based on public announcements, the “Mixed Goals” label has not been used so far (albeit we assume use of this label is in the pipeline given the FCA has included examples of disclosures for this label in its updated good practice guide).
• Investment Trusts and managers that have already adopted the SDR labels and published their consumer facing disclosures include Schroder BSC Social Impact Trust plc, Impax Environmental Markets plc, Bailie Gifford, Jupiter, and Regnan. 
• Other asset managers such as abrdn, M&G, and Schroders, have announced their plans to adopt the SDR labels, which are confirmed, or expected to take place, in early 2025.    
• From an in-house funds perspective, Standard Life has also led the pensions industry by being the first pension provider to proactively align to the SDR labelling rules for its primary default pension solution. Their in-house fund manager will adopt the “Improver” label for eight funds.

One to watch: We are also waiting for the FCA to publish their final rules on extending the SDR regime to portfolio management in Q2 2025. These rules were consulted on in April 2024 and were met with pushback from the industry and trade associations. 

It will be interesting to see how the industry continues to tackle SDR in the coming months. 

Related News, Insights & Events