Sustainability Disclosure Requirements – How the new financial services reporting obligations work

Sustainability Disclosure Requirements – How the new financial services reporting obligations work

On 28 November 2023, the Financial Conduct Authority (FCA) published the final rules in its Policy Statement (PS23/16) aimed at preventing greenwashing. PS23/16 includes a sustainable investment labels criteria, disclosure requirements and restrictions on the use of sustainability-related terms in product naming and marketing to prevent greenwashing. Authorised Fund Managers (AFMs) will need to identify and mitigate any greenwashing risks as soon as possible.

The new rules follow the FCA’s review of how 12 AFMs complied with the current ESG guiding principles in relation to ESG and sustainable investment funds. The review identified gaps and poor practices and encouraged AFMs to do more to meet regulatory expectations.

The initial consultation for the Sustainability Disclosure Requirements (SDR) opened in October 2022 and closed on 25 January 2023. The Policy Statement was finally published 5 months later than initially planned on the 28 November. The FCA stated the delays were due to the significant written responses to the consultation paper. We understand that other factors such as the need to consider and align to other international regulatory developments in respect of ESG and sustainability contributed to the delay as well.

If you have any questions about SDR and what it means for your firm, please get in touch with our specialist team.

Who does the Sustainability Disclosure Requirements regime apply to?

The SDR regime applies:
  • To all FCA-regulated firms under the scope of the new general ‘anti-greenwashing’ rule that requires sustainability-related claims are to be clear, fair and not misleading, effective as of 31 May 2024
  • To investment funds and managers, primarily those marketed and marketing to retail investors in the UK, in respect of the labelling and classification, disclosure, naming, and marketing and distribution rules, and can also be implemented by firms wishing to do so as of 31 July 2024
  • To firms that manage or distribute those products, who also fall under the scope of these rules effective as of 31 July 2024.
Firms should be aware that all products using a label or using sustainability-related terms in their naming and/or marketing, must include sustainability information in their pre-contractual disclosures by 2 December 2024 or from the date the label is first used. An ongoing product-level disclosure is required every 12 months from when the label or terms are used.

What are the key new Sustainability Disclosure Requirements?

The regime introduces a package of measures to inform and protect retail investors, also referred to as ‘consumers’, and to improve trust in the market for sustainable investments. Part of the regime is also aimed at professional or institutional investors, referred to as ‘clients’ by the FCA. 

The Policy Statement includes an expected anti-greenwashing rule for all authorised firms, four investment labels and new rules and guidance for firms marketing investment funds in relation to their sustainability characteristics. These include but are not limited to:

Sustainability Labelling 

There will be four voluntary fund labels: Sustainability Focus, Sustainability Improver, Sustainability Impact and 'Sustainability Mixed Goals' to accommodate multi-asset funds. 

The threshold for the Sustainability Focus category remains at the same 70% minimum threshold as for all labels. While the sustainability objective should represent the aims of the overall product, the product may invest in other assets for liquidity and risk management purposes, so long as 70% of the gross value of the product’s assets are invested in line with the sustainability objective. Independent assessment via internal processes or third parties applies. 


Funds can voluntarily opt for a label. Consumer-facing disclosure for products not using labels, but with sustainability-related terms in their names and marketing, must include a statement to clarify that the product does not have a label. Firms with a sustainability objective must identify and disclose whether pursuing the positive sustainability outcomes may result in material negative outcomes through Key Performance Indicators (KPIs). There is a requirement to identify, disclose and explain any other assets, such as cash or derivatives, held in the product for other reasons.

Reporting at the product level will be implemented gradually; firms of AUM greater than £50 billion will be subject to the product level reporting requirements from 2 December 2025 and at the entity-level from 2 December 2026.  

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

Naming and marketing rules    

The SDR Regime introduces an anti-greenwashing rule which imposes a requirement for all regulated firms to ensure that sustainability-related claims in all marketing materials and communications are clear, fair and not misleading. Any claims must also be consistent with the sustainability profile of the product or service. There are also restrictions on the use of sustainability-related terms in the naming and marketing of products and services.  

In addition to the anti-greenwashing rule for all firms, sustainability-related terms can only be used in product names and marketing when a label is used, provided that, where the ‘sustainability focus’, ‘sustainability improvers’ or ‘sustainability mixed goals’ labels are used, the word ‘impact’ is not used in the products name. Alternatively, they can be used when a label isn’t applied but complies with the product name and marketing sections specified in the Policy document.

The naming and marketing rules become effective on 2 December 2024.


Distributors must communicate any sustainability labels and provide access to the related consumer-facing disclosures to retail investors. They will also be required to keep the labels and consumer-facing disclosures up to date with any changes that the product manufacturers make to a label or the disclosures. Distributors will further have obligations to include a notice on overseas products to inform consumers that they are not subject to SDR.

What does SDR mean for Firms?

Firms need to assess their greenwashing risks, remediate any issues and ensure they have ongoing arrangements to prevent breaches before the 31 May 2024 deadline. This includes reviewing risk assessments and communications and their current approach to promoting and marketing products and services. Internal Audit and Risk and Compliance teams at asset management firms should support their firms to ensure that their arrangements are aligned with the new regime before the 31 July 2024 implementation date.

The FCA also expects that AFMs will carry out work to identify and address any shortcomings in the design, delivery, and disclosure of their funds. AFMs must make sure that their products are designed, delivered and disclosed in a way which is consistent with the Guiding Principles, as otherwise they can cause harm to customers. Internal Audit can provide valuable support in this process. 

We maintain a hub with lots of useful information on why ESG matters for financial services. Whilst please keep any eye out for information on our upcoming webinars in January and February 2024 where we will be providing more in-depth analysis on SDR.