What is the UK Sustainability Disclosure Requirements?

The FCA's Sustainability Disclosure Requirements (SDR) regime took effect in 2024 and aims to reduce greenwashing, improve trust, and help consumers navigate the market for sustainable investment products. It's part of a broader ambition to keep the UK among the world's leading hubs for sustainable finance.

The SDR regime draws on international best practices to enable clearer, more reliable information to flow among corporates, consumers, investors, and capital markets.

What are the key aspects of the Sustainability Disclosure Requirements?

The six key elements of the SDR are:

Anti-greenwashing rule

Sustainability-related claims about a financial product must be clear and not misleading, and firms must be able to substantiate them. The FCA's handbook on the anti-greenwashing rule provides guidance on how firms can comply with these requirements.

Naming and marketing requirements for asset managers

Asset managers must meet certain requirements when marketing investment products that use sustainability-related terms in a financial product’s name or marketing, e.g., a fund with a sustainability focus. The requirements can be found in ESG 4.3.2R to ESG 4.3.10R of the FCA's ESG Sourcebook.

Importantly, firms cannot use the terms “sustainable,” “sustainability,” or “impact” in a financial product's name unless the product carries one of the FCA's sustainability labels; more details on this below.

Investment labeling regime

Four voluntary sustainability labels can be used for financial products that have a sustainability focus:

• Sustainability Focus: Funds that invest in assets that are environmentally and/or socially sustainable.
  
  • Example: a fund investing in solar and wind power generation assets.

• Sustainability Improvers: Funds that invest in assets that have the potential to improve environmental and/or social sustainability over time.
  
  • Example: a fund investing in steel or cement producers that have set, verified net-zero targets.

• Sustainability Impact: Impact funds that aim to achieve a pre-defined positive, measurable impact in relation to an environmental and/or social outcome.
  
  • Example: a fund financing new affordable housing developments and reporting how many homes it delivers.

• Sustainability Mixed Goals: Funds invest in line with a combination of two or more of the sustainability objectives for the other labels.
  
  • Example: a fund split between solar power assets (Focus) and green bonds funding decarbonisation at a cement producer (Improvers).

Disclosures

Financial products with an FCA sustainability label require pre-contractual and consumer-facing disclosures that explain their sustainability characteristics. Unlabeled products that use sustainability-related terms must also include a consumer-facing disclosure explaining why they don't have a sustainability label (as mentioned before, FCA sustainability labels are voluntary, not a legal obligation).

Financial products that have an FCA label must also publish an annual sustainability product report confirming they're still meeting their stated objective - for example, for a fund which uses a Sustainability Impact FCA label, the sustainability product report would include information about how the fund has made progress on its pre-defined goals around environmental or social impact.  

In practice, the pre-contractual disclosure is included in the fund's standard offering documents, so investors see it as part of the paperwork before they commit capital. The consumer-facing disclosure is a short, standalone document that firms typically publish on their website, reference in client communications, and provide on request. The sustainability product report is shared when requested.

Annual sustainability report

Firms with UK AUM over £5 billion must produce an annual sustainability report that discloses at the entity level the firm’s approach to managing sustainability-related risks and opportunities. This report is structured around the same four pillars as the International Sustainability Standards Board (ISSB)’s reporting framework: governance, strategy, risk management, and metrics and targets. More details about this report can be found on the FCA's sustainability reporting requirements page.

Distributors

Distributors, such as advisers and platforms, must pass on sustainability labels and consumer-facing disclosures to retail investors, comply with the anti-greenwashing rule themselves, and display a clear notice when an overseas-domiciled fund they work with uses sustainability terms without being subject to the UK SDR. More information about what distributors need to do can be found in the SDR guidance page.

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Who is impacted by SDR?

Not every part of SDR applies to every firm. The anti-greenwashing rule applies to everyone; the rest depend on your fund structure, whether your marketing uses sustainability terms, whether you choose to apply an FCA sustainability label to your fund, and, for the annual sustainability reports, how much AUM you manage in the UK.

Below we outline who is in scope for each requirement:

• Anti-greenwashing rule: All FCA-authorized firms making sustainability-related claims
• Naming and marketing rules: UK asset managers using sustainability terms in financial products’ names or marketing
• Investment labels: UK UCITS (Undertakings for Collective Investment in Transferable Securities) and UK AIFs (Alternative Investment Funds) that choose to use a label
• Disclosures:
  
  • Pre-contractual disclosure: Fund managers with an FCA-labelled product
    
  • Consumer-facing disclosure: Fund managers with an FCA-labelled product, or an unlabeled product marketed using sustainability terms
  • Sustainable product report: Fund managers with an FCA-labelled product

• Annual sustainability reports: UK asset managers with over £5 billion in UK AUM.
  
  • Note: The AUM threshold is measured on UK AUM alone, aka only the assets a firm manages in the UK, not its total worldwide AUM.
• Distributor rules: Distributors (e.g., advisers or platforms) distributing labeled or unlabeled UK funds to retail investors

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How can firms comply with SDR?

Start by confirming which elements from the table above apply to you. What you do next depends on which one you need to comply with:

• Anti-greenwashing rule: Audit your existing marketing materials and website copy for sustainability claims, and make sure you can substantiate every one.
• Naming and marketing rules for asset managers: If you have a fund with a sustainability focus, review ESG 4.3.2R to ESG 4.3.10R of the FCA's ESG Sourcebook to confirm your fund’s name and marketing comply with the FCA's requirements for describing a fund's sustainability characteristics.
• Investment labels (voluntary): Assess whether a label is worth pursuing. If it is, notify the FCA and commission an independent assessment to determine whether the fund meets the requirements to use the FCA label. This is the first thing the FCA will expect you to produce. You can find more information on which label might fit your fund and how to use it in the FCA's guidance document on sustainability labels.
• Disclosures: Build your pre-contractual and consumer-facing disclosures, as well as your sustainability product report. We recommend that you review the FCA's published examples for guidance. The FCA's good and poor practice examples show what compliant disclosures look like, and its pre-contractual disclosure examples show how to apply them in practice.
• Annual sustainability reports: If you meet the £5 billion UK AUM threshold, start preparing your first annual sustainability report. Firms with UK AUM over £50 billion must report from 2 December 2025; those between £5 billion and £50 billion report from 2 December 2026.
• Distributor rules: If you distribute UK funds to retail investors, confirm you're passing on labels, consumer-facing disclosures, and overseas fund notices correctly, and that you are complying with the anti-greenwashing requirements yourself.

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Turning SDR requirements into a repeatable process

For investment firms, complying with SDR isn't just about producing another disclosure. The harder challenge is making sure the sustainability claims you make can be traced back to reliable evidence and keeping that evidence consistent across fund disclosures, investor reporting and communications.

Kara helps investment firms centralise sustainability data and supporting evidence in one place, validate and track information collected from portfolio companies, and reuse the same underlying dataset across different reporting and disclosure requirements.

That means less manual work every reporting cycle and a clearer audit trail behind the sustainability claims your firm makes.

If you're assessing what SDR means for your funds, we can help you understand the data and reporting infrastructure you'll need to support it.

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