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Many investors thought the UK SDR would look very much like the EU’s SFDR – but it won’t.

From 2nd December 2024, any investment fund that wants to market itself in the UK as having sustainability characteristics will be in the scope of SDR regulation; the ‘Sustainability Disclosure Requirement’ soon to be legislated in the UK.

We have summarised the key points that you need to be aware of leading into 2024 below:

How should your fund be labelled? 🏷️

Unlike SFDR, where asset managers can classify their own funds as Article 8 or 9, any fund in the UK wanting to use ‘sustainable’ or ‘impact’ in its name, must be granted a product label first by the FCA.

There will be 4 labels for sustainable investment funds:

• Sustainability Focus

At least 70 per cent of a product’s assets must be invested in assets that are environmentally or socially sustainable. 

• Sustainability Improvers

This is for products investing in assets that may not be sustainable now but have an aim to improve their sustainability over time.

• Sustainability Impact

This is a label for products investing in solutions to problems affecting people or the planet to “achieve pre-defined positive measurable impact”. 

• Sustainability Mixed Goals

This applies to a mix of sustainability of objectives and approaches present.

The evidence that you will have to show 🗃️

A minimum 70% of all investments within the fund, must meet the objective expressed by the fund’s label.

The objective must be measurable against a “robust, evidence-based standard” that is an “absolute (not relative) measure of environmental and/or social sustainability” and “independently assessed” by a third party or a business unit separate from the investment function. 

The “evidence” required by the FCA will be data-driven KPIs that show progress towards the fund’s sustainability objective. 

The Consultation Paper of Oct 2022 proposed the @ISSB Standards as the KPIs that should be used. This final Policy Statement has stepped back from that and allows asset managers to set their own KPIs, but it does warn that “….we will consider updating product level disclosure requirements in line with…future ISSB standards.”

What if your fund is already SFDR Article 8? 🇪🇺

Is a ‘Sustainable Focus’ label easier or harder to achieve than an ‘Article 8’ classification?

Definitely harder. This is because of the higher burden of evidence required, notably asset-level KPIs, and an independent assessment.

Indeed, p124 of the FCA statement bluntly states “Article 8 funds would need to level up to qualify for the SDR labels”.

What is the timeline here? 📆

Funds can start using these new labels from July. They are compulsory from next December.

But a new Greenwashing rule comes in in May, which demands that any claims of a fund’s sustainability must be “clear, correct and capable of being substantiated”.

What can you do to prepare? 📊

Understanding and successfully complying with these new regulatory requirements need not be a challenge.

UK asset managers should look to solutions like the Integrum ESG platform to enable them to properly deal with the FCA’s regulatory requirements. Our platform provides the following:

• Glass Box ESG Data 

The FCA requires any claim of a fund’s sustainability be “clear, correct and capable of being substantiated”. 

For every company, for every metric, our glass box will enable you to instantly understand and explain the key ESG challenges facing that company and how it is managing those challenges compared to its peers.

• Benchmarking & Reporting

The FCA has also stated that any sustainability references must be “fair and meaningful in relation to any comparisons to other products/services.”

Our platform enables you to create and export relevant benchmarks using our wide database of companies, all of which have transparent data so you show any regulator exactly where your portfolio stands in comparison to others.

• ISSB Alignment 

As mentioned above, it is highly likely that the FCA will update product-level disclosure requirements in line with the ISSB standards.

Integrum ESG has been a licensee of these standards for years – our data will always keep your ESG reporting in line with the FCA requirements.

Integrum ESG provides you with the most affordable, customisable and transparent ESG solution for your data and regulatory requirements. Reach out today to learn more about how we can support you through the changes the FCA will be implementing.