Final SDR to include fourth label and anti-greenwashing rules for all

The FCA’s policy statement on Sustainability Disclosure Requirements has finally arrived. An unprecedented number of responses to the consultation have resulted in an additional investment label for blended strategies and a more nuanced approach to marketing than the initial proposals had threatened. The anti-greenwashing rule – which will come into effect for all firms from May 2024 – alongside more detail on how the investment labels should be applied will bring much needed clarity to firms and investors alike. And with rules coming into effect from 2024, now is the time to be looking at how your firm might be affected.

Policy statement PS23/16: Sustainability Disclosure Requirements (SDR) and investment labels was published on 28th November. In it, the FCA introduces requirements for sustainability-related financial disclosures, a general anti-greenwashing rule, naming and marketing provisions, and investment fund labels.

The majority of feedback in response to the controversial SDR consultation paper in October 2022 seems to have been taken on board, in particular with the introduction of a fourth investment label. Several responses to the consultation, including Bovill’s, pointed out the challenge for funds that adopt a varied ESG strategy in fitting into one of original three labels. The addition of the new Sustainability Mixed-Goals label addresses this concern.

At a glance the final rules include:

  • an anti-greenwashing rule for all authorised firms
  • four sustainability investment labels
  • naming and marketing requirements which now mean that funds can stick to their sustainability characteristics when it comes to marketing and promoting the product to retail investors
  • consumer facing information for firms to provide consumers with better more accessible information to aid their understanding of a product’s sustainability characteristics
  • detailed information for pre-contractual, ongoing product level, and entity level disclosures geared towards institutional investors as well as those consumers seeking more information
  • distributor requirements to ensure the product level information and the fund labels are made readily available to consumers.

Sustainability labels

As previously mentioned, one of the ‘headline’ changes from the consultation paper to the final rules is the addition of a fourth sustainability investment label called Sustainability Mixed-Goals. This label is to be used by fund managers for funds investing across different sustainability objectives and strategies aligned with the other three labels, which remain as Sustainability Focus, Sustainability Improvers, and Sustainability Impact. Interestingly, the regulator has adjusted the term ‘sustainable’ to ‘sustainability’ for all the labels, to reflect how some funds are “on a journey to becoming sustainable” compared to others across industry.

We know that in response to the original consultation, respondents queried whether the 70% threshold for investing in assets under the Focus label would also apply to other labels, indicating a demand for consistency. In the final rules, the FCA has now applied the 70% minimum threshold to all labels for meeting the sustainability objective of the labelled product.

The FCA further clarified that asset selection should be done with reference to a “robust, evidence-based standard that is an absolute measure of environmental and/or social sustainability” and that the assessment of the criteria used can be conducted internally, albeit by a function independent from the firm’s investment process, or by a third party. This liberalising measure is likely to give firms more flexibility in their product design and lead to increased investor choice.

The FCA has also listened to feedback on stewardship, now being applicable to all labels instead of just Improvers. For firms to qualify for any label, they must identify and apply the investor stewardship strategy and resources needed to support the product’s sustainability objective, but without the previous prescriptive guidance on what stewardship entails firms will again have more flexibility to design their own engagement strategies. The rules for the four sustainability labels will come into effect from 31 July 2024.

Anti-greenwashing rule

Not surprisingly, the general anti-greenwashing rules remains as a requirement for all authorised firms to ensure that sustainability-related claims are consistent with the sustainability profile of the product or service and, of course, are fair, clear, and not misleading. Although many firms have already started to carry out an extensive review of all client communications and general marketing in line with the anti-greenwashing rule, the FCA has recognised that firms may need additional guidance on the regulator’s expectations for all firms making claims about the sustainability of product to service. The FCA is asking for respondents to submit their comments on this by 26 January 2024.

The anti-greenwashing rule comes into force on the 31 May 2024.

Naming and marketing requirements

Arguably one of the most heavily criticised sections of the initial consultation paper, was the naming and marketing requirements that originally proposed that fund managers who do not decide to attach a sustainability investment label to their fund would not be permitted to use certain terms such as ‘green’, ‘net-zero’, ‘responsible’ and so on in marketing materials.

The FCA has taken this feedback on, and in the final rules will now allow fund managers to promote non-labelled funds with ESG characteristics. Certain conditions must be met which include producing disclosures and a stand-alone statement to clarify that the fund does not use a label and why. The FCA has decided to retain the non-exhaustive list of sustainability terms as a starting point, and in turn expects firms to correctly use certain terms in line with the anti-greenwashing rule and future supplementary guidance. For products using sustainability-related terms in the product’s name, the product must have sustainability characteristics and the name must accurately reflect those characteristics.

The FCA has stuck to the original position that no fund may include the terms ‘sustainable’, ‘sustainability’, or ‘impact’ in its name if it does not use a label.

Consumer facing information

The consumer facing disclosures are being introduced to enhance consumers’ understanding of a product’s sustainability characteristics. The disclosures must be outlined in a separate document and placed prominently on the product’s webpage or other digital medium, to be presented alongside other documents such as the Key Information Document. The FCA has outlined minimum information that must be disclosed where a product without a label uses sustainability-related terms in product names and marketing, for example a statement to clarify why a product does not have a label and detail on where a consumer can access other relevant information. These disclosures for consumers must be reviewed and updated annually and for products that do have a label, disclosures should be updated to reflect any progress towards achieving the sustainability objectives.

Detailed product-level disclosures

Similar to other sustainability-related regulations, the FCA proposed detailed disclosure requirements for products and services that use a label, aimed at institutional investors and those retail investors who want access to detailed information on sustainability products. Following the release of the final rules, these requirements remain in line with the FCA’s initial proposals for pre-contractual and ongoing product disclosures. Some slight tweaks have been made, for example allowing firms some flexibility to leverage detail used in existing disclosures, such as in relation to the Stewardship Code, provided that the information is relevant and clearly signposted.

The FCA has also clarified that pre-contractual disclosures do not need to be updated annually but should still be updated where firms revise or cease to use a label. The pre-contractual disclosures are required from the date a label is first used or by 2 December 2024 for products using sustainability-related terms in their product name and/or marketing materials without a label.


Distributors, such as investment platforms and financial advisors are in scope when communicating recommending or distributing sustainability products to clients/investors. They will need to make available details of the labels and provide access to the consumer facing disclosures to retail investors and must keep this information up to date.

The FCA has also clarified that the SDR intends to proceed for UK funds as a starting point with an intention for future consultation on further requirements for portfolio managers, pensions providers and advisers. FCA indicated that for portfolio managers this consultation could be as early as Spring 2024.

Now the final requirements have been published firms should waste no time in dissecting the rules and assessing the likely impact they will have on their products and services, especially considering whether any funds will require a label.

We can help

We have a team of ESG experts across our specialist sector teams to help you assess the impact of the SDR on your business and your products and ensure you are well placed to implement each of the rules when they come into force.