The policy statement sets out the FCA’s expectations of asset managers when making sustainability claims and includes anti-greenwashing rules, product labels and disclosure requirements.

While some aspects still require clarification, overall, the rules are relatively intuitive and provide much-needed flexibility for the industry to evolve and innovate.

SDR – the key components

The overall aim of the SDR is to ‘improve trust and transparency to the market for sustainable investment products.’ The final package includes:

While all FCA-authorised firms are subject to the anti-greenwashing rule, product rules relate to UK funds only (overseas funds, portfolio management and pension products are currently out of scope). The anti-greenwashing rule comes into effect on 31 May 2024. Firms can apply for labels from 31 July 2024, and the remaining aspects come into effect from 2 December 2024.  

SDR vs SFDR

Our initial thoughts on the final publication are that, compared to the EU’s SFDR requirements, the UK’s SDR provides a more intuitive and straightforward application. While the SFDR articles were not intended to be used as labels, the SDR has explicitly introduced product labels. Some points still need to be clarified, but multi-asset and real estate funds in particular are potentially better served under SDR than SFDR. 

The SDR allows for funds to invest in assets that are improving or on track to be more sustainable (rather than only those that are sustainable already). It also acknowledges that sustainability-related terms may have multiple applications depending on context. The SDR is also less prescriptive in its indicators, as it allows funds to track progress using KPIs aligned to approach and does not seek to define or measure ‘sustainable investments.’ 

The SDR’s requirement for a minimum of 70% of assets to align to the sustainability objectives of the fund is broadly consistent with the threshold expectations put forward by regulators in the US and Singapore¹. As the European Commission concludes its consultation on SFDR, we will be interested to note whether it starts to align with the approach in other jurisdictions.

Our final thoughts

At abrdn, we recognise the need for consumers to be able to make informed decisions about the sustainability of funds in which they invest. We therefore greatly appreciate the time and thought the FCA has put into developing the SDR.

The news that sustainability funds will be allowed to invest in assets that are transitioning or improving is particularly welcome, as is the introduction of an additional ‘mixed’ label. The FCA has addressed many of the concerns raised by the industry. While we still have questions about some aspects of the SDR, the FCA’s willingness to work with and listen to the industry will help ensure that regulation is fit for purpose.  

While it remains to be seen if SDR will be easy to apply, we believe the labelling rules will help to support growing customer confidence. We are looking forward to working through the details to ensure that our funds remain relevant, credible and appropriate for our end investors.