Quick Guide: Key Sustainability Disclosure Regimes: UK SDR

The FCA rules introduce three key elements relevant to sustainable investing:

• Anti-greenwashing rule (“AGR”): This rule underpins the UK SDR and requires all FCA-authorised firms to ensure that any reference they make to the “sustainability characteristics” of their financial products and services is consistent with the sustainability characteristics of the product or service, and is clear, fair and not misleading.
• Sustainability labels: Funds that meet the requirements can opt into one of four sustainability labels. Naming and marketing rules also apply in respect of funds that use certain ESG terms in their names or marketing, but are not adopting sustainability labels. The aim is to support consumers to distinguish between different types of sustainable investment product (and between products on the basis of their sustainability characteristics and outcomes).
• Product level sustainability disclosures (applicable to both labelled and unlabelled funds that use sustainability-related terms in their names and marketing materials) and entity level sustainability disclosures (applicable to all asset managers, regardless of whether they use a label or sustainability-related terms, if they have more than £5 billion AUM). There are four key elements to the UK SDR disclosure regime:
  • product level consumer facing disclosures – aimed at retail investors;
  • product level pre-contractual disclosures – aimed at all potential investors;
  • ongoing product level disclosures; and
  • entity level disclosures (which build on existing TCFD entity level reporting). 

The anti-greenwashing rule applies to all regulated firms with respect to communications making sustainability-related claims to persons in the UK, as well as financial promotions approved for communication to persons in the UK. 

The other core elements of the regime (labelling, disclosure, and naming and marketing rules) apply to managers of AUTs, ICVCs without a separate management company, UK AIFMS and UK UCITS management companies (“UK managers”). 

Distribution requirements apply to distributors “distributing” to UK retail investors, including platforms and advisers.

The anti-greenwashing rule is mandatory.

The use of a label is optional. However, where a label is utilised, or where an unlabelled funds uses sustainability-related terms in their names and marketing materials, the disclosure rules must be complied with. 

Note that where the AUM of a UK manager is above the £5 billion threshold, it will need to make entity level sustainability disclosures irrespective of whether a label or sustainability-related terms are used. 

The requirements for distributors are mandatory.

The anti-greenwashing rule has been in force since 31 May 2024.

The sustainable investment labelling and disclosure regime came into force on 31 July 2024. 

The naming and marketing rules for fund managers came into force on 2 December 2024. 

Further requirements relating to product and entity-level disclosures will come into force from 2 December 2025.

Distributor rules have applied: (i) for labelled products and non-labelled products that use sustainability related terms in naming and marketing, since 31 July 2024; and (ii) for recognised schemes that use sustainability related terms in naming or marketing, from 2 December 2024.

The FCA’s general anti-greenwashing rule requires all regulated firms to ensure that the naming and marketing of financial products and services in the UK is clear, fair and not misleading, and consistent with the sustainability characteristics of the product or service.

The FCA has explicitly noted that it considers that under its existing rules, firms should already be ensuring that the information they communicate to clients is clear, fair and not misleading. However it considers it necessary to add a specific rule to directly link this to sustainability claims (and to ensure that firms have no doubt that this applies when they are making sustainability claims). 

The application of the rule to all firms means that the FCA also captures firms that approve financial promotions for unauthorised persons, including for overseas products and services where the promotion is approved in the UK (such that they will need to ensure that the promotions they approve for unauthorised persons comply with the AGR as well as the financial promotions rules).

The FCA has published finalised guidance applicable to all firms (FG24/3) on its anti-greenwashing rule, the aim being to help firms better understand the FCA's expectations. 

In short, the FCA expects sustainability references to be:

• Correct and capable of being substantiated.
• Clear and presented in a way that can be understood.
• Complete and: (i) not omit, or hide, important information; and (ii) consider the full lifecycle of the product or service.
• Fair and meaningful in relation to any comparisons to other products or services.

The FCA has introduced the following four sustainable investment labels for UK funds that aim to improve or pursue positive outcomes for the environment and/or society, each of which represents different sustainability objectives, and in turn different investment approaches to pursue those objectives (so different products might invest in similar assets but have different labels depending on their objectives):

• Sustainability Focus - applicable to products investing mainly in assets focusing on sustainability for people or the planet.
• Sustainability Improvers - applicable to products investing mainly in assets that may not be sustainable now, with an aim to improve their sustainability for people or the planet over time.
• Sustainability Impact - applicable to products investing mainly in solutions to sustainability problems, with an aim to achieve a positive impact for people or the planet.
• Sustainability Mixed Goals - applicable to products investing mainly in a mix of assets that either focus on sustainability, aim to improve their sustainability over time, or aim to achieve a positive impact for people or the planet.

There is no hierarchy between the four labels as they simply represent different objectives or approaches that may be aimed at meeting different consumer preferences.

UK managers of UK products can opt to use a label if they qualify to do so and the product meets (on an ongoing basis):

• general requirements – these are applicable to all labels and include requirements under the following key areas:
  • sustainability objective;
  • investment policy (including that at least 70% of assets are invested in accordance with the sustainability objective) and strategy;
  • KPIs to measure progress towards achieving the sustainability objective;
  • governance and resources;
  • stewardship; and 
• specific criteria (relating to the specific label used). 

UK managers that intend to use a sustainability label in relation to a particular sustainability product, or to revise or cease the use of that label, must make a notification to the FCA using the FCA’s online notification and application system, prior to doing so or as soon as reasonably practicable afterwards. 

UK managers that decide to use the labels must also comply with disclosure requirements (see further below).

Under the UK SDR, UK managers will be able to use sustainability-related terms in product names and marketing materials (subject to certain restrictions) for in-scope retail funds if:

• the product uses a sustainability label; or
• where no such sustainability label is used, the product meets certain naming restrictions, and disclosure / reporting requirements - and the product must have sustainability characteristics and a name which accurately reflects those characteristics

As an exception to the above, firms are permitted to use the listed sustainability related terms to make short factual statements that are not financial promotions, or to make statements not intended to refer to, or describe, the sustainability characteristics of a sustainability product. The FCA’s intention here is to avoid firms being brought within the scope of the rules if they are simply referencing sustainability related terms in a non-promotional way. The AGR would nevertheless still be applicable.

Only funds using a label are permitted to use the terms “sustainable”, “sustainability” or “impact” (or any variation thereof) in their names. 

Funds without a label that are caught by the naming and marketing rules will need to clarify that the fund does not have a label and why.

As noted above, the FCA has adopted a tiered approach to the disclosure regime:

The first is a product level consumer facing disclosure, with detailed rules (see FCA Handbook ESG 5.2) governing scope, content and format. Broadly, this document should be a summary of the information disclosed in the detailed product level disclosures. This consumer facing disclosure should be available from the point a label is used (or since 2 December 2024 if restricted sustainability terms are used) and should be reviewed and updated at least annually.

The second level of disclosure is the product level disclosures. These disclosures are aimed at those investors who want more detail than is provided in the consumer facing disclosures, and are split out into two parts:

• Pre-contractual disclosures (referred to as “Part A” disclosures, and must be used from the date the label is first used (or for products using the terms without a label the rules have been applicable since 2 December 2024). These should be included in the prospectus, or the FUND 3.2.2 disclosures or (where neither are produced) in a separate (but not necessarily standalone) part of the sustainability report. These disclosures do not need to be updated annually, but should be updated as soon as reasonable practicable when revising or ceasing to use a label; and
• Ongoing disclosures (referred to as “Part B” disclosures and must be provided annually 12 months from either the date the label is applied, or from 2 December 2025 if sustainability terms are used without a label). The report is intended to provide details of the sustainability performance of the product.

Again, detailed rules govern preparation, form and content (see FCA Handbook ESG 5.4 and 5.5).

The final level of disclosure is the entity-level report. This is applicable to all asset managers that have more than £5 billion AUM, regardless of whether or not they use a label or sustainability related terms. Asset managers with AUM over £50 billion will be required to report from 2 December 2025, and all other managers with AUM above £5 billion must report from December 2026. The rules governing content (including the circumstances in which, and the extent to which, group level disclosures can be referenced) can be found in the FCA Handbook at ESG 5.6. This report focuses on sustainability-related risks and opportunities. It builds on existing TCFD-derived requirement (following the same 4-pillar approach adopted by the TCFD and ISSB on governance, strategy, risk management, and metrics and targets). Additional requirements apply where a firm has a product in respect of which product-level disclosures are being made. The rules also expressly refer a number of global standards that may be relevant in helping firms to determine what they should disclose: the TCFD's supplementary guidance for asset managers, the IFRS sustainability disclosure standard (i.e. IFRS S1), the SASB Standards and the GRI Standards.

A distributor distributing to UK retail investors must: 

• With respect to sustainability products that use a label or sustainability-related terms in the name or marketing, ensure that the product’s label (if used) is displayed prominently, provide access to the consumer-facing disclosures, and keep its marketing communications up to date to reflect any changes to the product’s sustainability-related disclosures.
• With respect to recognised schemes that use sustainability related terms in the name or marketing, provide a prescribed statement that the fund is based overseas and is not subject to the UK SDR.

Firms must:

• Entity level: include the contents of their TCFD entity report (or a hyperlink to it) in their sustainability entity report.
• Product level: when producing a product-level sustainability report, include the contents of their TCFD product reports (or a hyperlink to them).

The FCA has updated its website to confirm that firms can, but are not required to, align their UK SDR reporting periods to their existing TCFD reporting (with examples of how dates might be aligned provided on the webpage). 

Whichever approach a firm takes, it must ensure that its first sustainability entity report covers a reporting period of 12 months. It must also ensure that, when changing the reporting periods for subsequent reports, an interim report is issued, where necessary, to ensure there is no period of time left unaccounted for.

Potential clarifications to the rules

In its latest quarterly consultation, the FCA has proposed a few helpful clarifications to the UK SDR rules. 

With respect to disclosure, the FCA proposes:

• allowing flexibility for product level reports to cover a reporting period of less than 12 months, or to include a period of time during which neither a sustainability label or ESG terms were used. This would serve to give firms greater flexibility to align their reporting of their sustainability reports with the timing of their other regulatory reports (a new ESG 5.4.3(1A) is proposed); and
• clarifying that firms are not required to produce an on-demand sustainability product report until at least 16 months after the first use of a label or relevant terms (amending ESG 5.5.15R)

The consultation closes on 15 October 2025.

Extending the regime to portfolio managers?

Having consulted on extending the UK SDR to portfolio management, in April 2025, the FCA confirmed that, whilst overall there is broad support for the extension, it wants to take some time to consider the challenges and ensure portfolio managers are positioned to implement the regime effectively before introducing requirements. This extension is therefore effectively on the back burner for now.

Application of the UK SDR to funds recognized under the OFR?

When it published its policy statement on the UK SDR, the FCA made clear that a level playing field, with the same broad requirements applying to all products marketed in the UK, was of key importance. The question of whether the regime should be extended to OFR funds is, however, in the first instance a question for the Treasury. A Joint Roadmap on the OFR issued in May 2024 did not confirm the Treasury’s policy position, but it did set a timeline for that decision to be made. The first step will be a Treasury consultation, albeit there has been no recent update on when this can be expected. If the government does decide to extend the SDR to OFR funds, we expect legislation to be laid in short order, followed swiftly by an FCA consultation on its related rules and guidance.

• FCA Handbook ESG Sourcebook (with rules primarily to be found at ESG 3, 4 and 5)
• FCA’s Sustainability disclosure and labelling regime webpage
• FCA finalised non‑handbook guidance on the anti‑greenwashing rule (FG24/3)
• FCA UK SDR pre-contractual disclosure examples
• FCA policy statement: Sustainability Disclosure Requirements (SDR) and investment labels (PS23/16)

• Client note on the FCA policy statement PS23/16 
• Webinar recording on the interplay between the UK SDR and EU SFDR
• Sustainable Finance Survival Guide
• Quick Guide on UK TCFD aligned reporting requirements for asset managers