UK: FCA sets out examples of good and poor practice for using Sustainability Disclosure Requirement labels

Sustainability Focus label

Good practice

Poor practice

It is clear that the objective is to invest in assets that are environmentally or socially sustainable and that the objective briefly explains the sustainability characteristics. 

The disclosures include any material negative outcomes that might occur from pursuing a positive outcome. 

There is a scoring system that classifies assets as sustainable if they score 7 out of 10  includes a description of the criteria that assets would need to meet, or attributes that they would need to have, to get that score.

Where a fund has a sustainability objective to invest in products/services across several themes, it uses KPIs that show how the fund is invested across those themes. Additionally, KPIs could measure environmental or social outcomes.

The objective is not clear, specific and measurable.

A company is selected based on some sustainable attributes without considering the complete picture.

The standard of sustainability is not backed by evidence or the firm refers to the fact that its peers have used a similar standard as evidence but cannot provide any authoritative evidence of its own.

The firm engages broadly on ‘ESG’ or ‘sustainability’ without explaining how this is consistent with the fund’s sustainability objective.

The firm claims that 100% of the company’s revenues is derived from sustainability products/services but cannot substantiate that claim.

Sustainability Improvers label

Good practice

Poor practice

The disclosure sets out how the firm intends to measure an outcome in relation to an objective.

The firm selects assets that have the potential to meet an emissions target over a specified period of time.

The firm decides which assets have the potential to meet the standard based on disclosures, clear strategies, and transition plans.

KPIs show decarbonisation where the fund’s sustainability objective is to invest in assets with the potential to decarbonise. Disclosures may also include metrics to show the proportion of assets that are ‘on target’ to decarbonise as well as some contextual information.

A fund has a climate-related objective that is only based on reducing Scope 1 and 2 emissions, but gives the impression that the aim is to reduce ‘all’ emissions (including Scope 3).

The firm assumes that assets will set decarbonisation targets, without any robust evidence to support this.

Firms continue to engage with companies that aren’t making progress towards the objective, with no timeframe for them to respond to the engagement, or next steps if they don’t. Or, the timeframe for engaging with assets does not align with the short and medium-term targets for the fund.

Sustainability Impact label

Good practice

Poor practice

The fund aims to make a positive impact by investing in companies from four environmental impact areas and the outcomes are clear in each of these areas.

A fund’s assets aim to provide the general population with access to education and the firm clearly sets out what change it expects, such as expanding to less developed economies or improving access to education through online resources.

The firm engages with the assets on core topics about the sustainability objective, with clear milestones. This could include engaging with management to guide capital spending towards sustainable outcomes and therefore boost impact. 

The firm measures how the companies respond to this engagement. In its disclosures, it includes KPIs that measure whether the company is delivering greater impact. The firm does not claim sole responsibility for any outcomes achieved. 

As well as helping achieve positive impacts, the firm may also engage to help the assets to mitigate negative impacts. 

The fund seeks broad or unmeasurable impacts.

A fund invests in banks or insurers providing basis financial services to the general population. However, it does not clarify what change it expects by investing these assets or why, or how its investment activities will make a positive impact.

The KPIs are not consistent with the objective and theory of change. 

Sustainability Mixed Goals label

Good practice

Poor practice

(None provided)

The fund intends to invest in assets that focus on sustainability (Focus) or have the potential to improve over time (Improvers). However, all assets have Improvers’ attributes, and it is not clear which assets already meet a standard of sustainability and are therefore considered Focus.

Although an asset makes up 10% of the fund’s gross value, the firm counts this as 10% towards a ‘Focus proportion’ of the threshold as well as 10% of an ‘Improvers proportion’. It is double counted.