SDR labels, the investment labels under the FCA’s Sustainability Disclosure Requirements, have been available since 31 July 2024, so UK investment managers can now put one of four sustainability labels on their funds, and although labels are optional, they come with disclosures from the first day they’re used. The next date matters to far more firms, because from 2 December 2024 the naming and marketing rules apply to any UK fund that uses sustainability-related terms without a label. Both come from the FCA’s SDR and investment labels policy statement, PS23/16, and together they change what a fund can call itself.
What are the four SDR labels?
SDR labels are the FCA’s four optional sustainability labels for UK funds, and they aren’t a hierarchy, since each one describes a different sustainability objective and a different way of getting there:
- Sustainability Focus: for funds that aim to invest in assets that are environmentally and/or socially sustainable, measured against what the FCA calls “a robust, evidence-based standard that is an absolute measure of environmental and/or social sustainability”.
- Sustainability Improvers: for funds investing in assets that aren’t sustainable yet but have the potential to improve over time, with a defined period and short and medium-term targets.
- Sustainability Impact: for funds that aim to achieve a pre-defined, positive, measurable impact, with a theory of change explaining how the fund’s investments and the manager’s activities will achieve it.
- Sustainability Mixed Goals: for funds combining the objectives of the other labels, which must meet the requirements of each label they draw on.
What does a label need?
Every label rests on the same qualifying criteria, which are a sustainability objective, an investment policy and strategy, key performance indicators (KPIs), resources and governance, and stewardship. At least 70% of the fund’s assets must be invested in line with the sustainability objective, and other assets must not conflict with it. Independent verification isn’t mandatory, but the standard used must be assessed as fit for purpose by someone independent of the investment process, whether internally or externally.
Using a label also triggers work straight away. A two-page consumer-facing disclosure must be published prominently from the day the label is first used, alongside pre-contractual disclosures in the prospectus, and firms must notify the FCA through its online system of the fund’s name, the date the label was first used and a link to the product. Ongoing product-level disclosures follow, published 12 months after the label is first used and annually after that.
What do the naming and marketing rules require?
From 2 December 2024, a UK fund can only use sustainability-related terms in its name and marketing if it uses a label, or if it meets the naming and marketing rules without one. A fund without a label must have sustainability characteristics that its name accurately reflects, and it can’t use “sustainable”, “sustainability” or “impact” in its name. It must also publish the same types of disclosures as a labelled fund, along with a statement making clear that it doesn’t have a label.
Labelled funds face a restriction of their own, because a fund using the Focus, Improvers or Mixed Goals label can’t use “impact” in its name. All of this sits on top of the anti-greenwashing rule, which has applied to all FCA-authorised firms since 31 May 2024.
Who does it cover, and who doesn’t it cover yet?
The regime applies to UK funds and UK investment managers. Overseas funds, including those marketed under the Overseas Funds Regime, are out of scope, and the FCA says extending SDR to them is a matter for HM Treasury. Distributors must make labels and consumer-facing disclosures available to retail investors, and by 2 December 2024 they must place a notice on overseas funds telling consumers that those funds aren’t subject to the UK regime.
In April the FCA also consulted on extending the regime to portfolio managers (CP24/8), proposing that it would apply from 2 December 2024. That consultation closed on 14 June and final rules haven’t yet been published.
What it means in practice
Fund names become a deliberate decision rather than a default, because every UK fund with a sustainability term in its name now faces a choice between taking a label, keeping the term and meeting the naming rules, or renaming.
The number of disclosures also grows, and consumer-facing disclosures, pre-contractual sections and ongoing reports all draw on the same data, including the objective, the 70% test, KPIs and holdings. That means they need to agree with each other and with your factsheets, which is simpler when they come from the same regulatory document automation.
Distribution data changes as well, since labels and disclosures need to reach platforms and distributors quickly and stay current whenever anything changes.
The timeline
- 28 November 2023: PS23/16 is published
- 31 May 2024: the anti-greenwashing rule comes into force for all authorised firms
- 31 July 2024: UK investment managers can start using labels
- 2 December 2024: the naming and marketing rules and disclosures apply to funds using sustainability terms without a label, and the distributors’ notice on overseas funds is due
- 2 December 2025: entity-level disclosures begin for firms with over £50bn in assets under management, and ongoing product-level disclosures become available on demand
- 2 December 2026: entity-level disclosures extend to firms with over £5bn
What to do now
- Decide fund by fund, recording for every UK fund that uses a sustainability term whether you’ll label it, keep the name under the naming rules, or rename it.
- Build the disclosure set once, producing the consumer-facing disclosure, pre-contractual wording and ongoing report from the same governed data so that they can’t drift apart.
- Talk to distributors early to agree how labels, disclosures and changes will reach them, and how overseas funds will carry the required notice.
Labels remain optional, but from December every sustainability word in a fund’s name and marketing will need to be backed up, so the fund-by-fund decisions are worth making well before the deadline.
At Kurtosys we help investment managers keep their fund data governed and consistent, so the same objectives, metrics and holdings flow into factsheets, regulatory documents, client reports and fund websites. When a label or a name changes, that should be one governed update reflected everywhere. If you’d like to talk through what SDR labels and naming rules mean for your documents, get in touch.
Sources: FCA PS23/16: Sustainability Disclosure Requirements and investment labels, FCA press release, 23 April 2024, FCA CP24/8: extending SDR to portfolio management, FCA FG24/3: anti-greenwashing guidance, as at 1 August 2024.
About this article
This article reflects the position at 1 August 2024 and was checked against the primary sources available at that time. Thomas Bjerkén, our regulatory reporting and fund data specialist, joined Kurtosys after it was published and now looks after our regulatory content. The UK SDR regime has moved on since. For the latest position, see SDR naming and marketing rules: one month to the 2 April cut-off.
