Europe: Final SDR rules published by FCA – Time to label your funds (maybe)

The FCA has published its final rules on the UK’s Sustainability Disclosure Requirements (SDR) regime. The key features include:

  • An anti-greenwashing rule – applicable to FCA authorised firms in relation to sustainability-related terms in communications from 31 May 2024.
  • Sustainability labels – available for use by UK authorised funds and certain UK AIFs with UK AIFMs from 31 July 2024.
  • Rules on the use of sustainability-related terms – applicable to UK authorised fund managers and UK AIFMs from 2 December 2024, supplemented by rules applicable to FCA authorised distributors from 31 July 2024.
  • Disclosure and reporting requirements – for products using a label or with sustainability features, and certain FCA authorised firms.

What are the labels? The “Sustainability Focus”, “Sustainability Improvers”, and “Sustainability Impact” labels proposed in the FCA’s consultation have been adopted. In addition, the FCA is introducing a “Sustainability Mixed Goals” label for products adopting a blended strategy.

Are products that do not opt for a label prohibited from using ESG-related terms in their names? Not necessarily. In a change to the proposed rules, in-scope firms may use sustainability-related terms in the name of an in-scope product if they meet certain conditions and avoid the terms ‘sustainable’, ‘sustainability’ and ‘impact’.

What about non-UK products? These are not directly in-scope. HM Treasury is to consult on the possible application of SDR to non-UK funds as part of the Overseas Funds Regime (OFR). Consequently non-UK funds may not use the SDR sustainability labels. However, the anti-greenwashing rule will apply to UK firms in relation to non-UK products, and there will be a mandatory disclosure for non-UK funds “recognised” for distribution to retail clients in the UK if they use a sustainability-related term.

Is there more to come? YES! As well as the OFR, the FCA is consulting on guidance supporting the anti-greenwashing rule.

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