Naming and… Sustaining? The FCA’s Sustainability Disclosure Requirements


Ruth Avenell and Estelle Rocca-Serra

Publish Date


Compliance Alert

  • ESG

The UK Financial Conduct Authority (FCA) published a policy statement in November 2023 confirming final rules under the Sustainability Disclosure Requirements (SDR) and investment labels regime. The regime is part of a wider environmental, social, and governance (ESG) push by the regulator and aligns with measures taken by regulators globally (including the EU Sustainable Finance Disclosure Regulation and the Securities and Exchange Commission’s (SEC’s) climate-related disclosure rules).

The policy statement was the outcome of “chopping and changing” made to rules proposed in a consultation paper published a year earlier. As a result of stakeholder feedback on the proposals, the final rules carve out an alternative approach for portfolio managers to be consulted down the line and the addition of a fourth label to the original three proposed investment labels.

The intent behind these requirements is to ensure that consumers have access to consistent information across different funds that purport to be sustainable investment funds. The rules are the FCA’s way of addressing its growing concerns that firms might be making misleading sustainability-related claims about their investment products (the eponymous “greenwashing”) when these are not backed up in practice. In the FCA words, the “regime will support consumers in navigating their investments with trust that the products they are buying do as they say they will”.


The FCA has produced a list of sustainability-related terms in the Environmental, Social and Governance sourcebook. When in-scope firms use these terms in the name of a relevant investment product in which retail clients are invested or in financial promotions in relation to products that are communicated to retail clients, they will need to abide by the new requirements, summarised as follows:

  • The firm may use the specified sustainability-related terms in the product’s name provided the product has sustainability characteristics, the name accurately embodies those characteristics, and the product name does not use the terms “sustainable”, “sustainability”, “impact”, or a variation of those terms to refer to the sustainability characteristics of the product. (Those particular terms are off-limits unless used in a “factual” way.)
  • The firm will need to publish an explanation of the purpose of a sustainability label using the standard text “Sustainable investment labels help investors find products that have a specific sustainability goal,” or provide its own explanation in a prominent place on its website. It will also need to publish the following statement: “This product does not have a UK sustainable investment label” and a brief rationale for why the product has chosen not to use a sustainability label.
  • The manager will need to produce three categories of disclosure for the product:
    1. A consumer-facing disclosure: This disclosure should include key information about the firm and the product as well as a summary of the manager’s investment policy and strategy in relation to the product’s sustainability characteristics. It should set out the key sustainability characteristics of assets in which the product will and will not invest, include a summary of the relevant metrics in relation to the product, and any relevant contextual information, such as an explanation of how the metrics used should be interpreted. This disclosure should be presented in plain English, should be clear and concise, and should not exceed two A4 pages in length (no waffling).
    2. Pre-contractual disclosures: The FCA expects these pre-contractual (i.e., pre-investment) disclosures to be included in a dedicated section of a product’s private placement memorandum (PPM) or prospectus. The disclosure should include details of the manager’s investment policy and strategy. In particular, it should include how the manager determines the assets the product invests in, including the criteria it applies when determining the sustainability characteristics of those assets, details of the robust and evidence-based key performance indicators used by the manager to demonstrate the product’s progress towards meeting its sustainability objective, and any other metrics a retail client may find useful to understand the manager’s investment policy and strategy for the product. “Part A” of a public product-level sustainability report is required for the product if it does not happen to have precontractual materials.
    3. Annual sustainability report: “Part B” of a public product-level sustainability report is also required for in-scope products. The report should include details about how the product invests in accordance with the manager’s investment policy and strategy for that product on an ongoing basis, details about the relevant metrics that a retail client might reasonably find useful to understand the product’s sustainability objective and/or the manager’s investment policy and strategy for the product and relevant contextual information, such as how the metrics should be interpreted and their associated limitations. Any deviations from the manager’s overall approach outlined in its sustainability entity report (where this is required, i.e., the manager has more than £5 billion in assets under management) should also be explained in this report. This report should be published annually (the first one within 12 months of the product being brought into scope of the requirements) ideally on the firm’s website.

In contrast to the EU Sustainable Finance Disclosure Regulation, there are no regulator-prescribed templates available for these disclosures and the FCA does not intend to produce these, although it has encouraged the development of industry-led templates.


The naming and marketing rules will apply to UK UCITS management companies when they manage UK UCITS, and to UK AIFMs managing UK AIFs (including small, authorised UK AIFMs).

As hinted at above, firms will not need to comply with the disclosure requirements if they use the specified sustainability-related terms in a factual way only. This will be a fine line to tread for firms that manage in-scope funds that have a sustainable investment objective. It is expected that most such funds will either apply one of the investment labels or choose to comply with the naming and marketing requirements.

Extension of SDR to portfolio managers

On 23 April, the FCA published a consultation paper extending SDR (including the naming and marketing rules) to portfolio managers. Under the FCA’s proposals, portfolio management offerings will be able to use a label if they meet the criteria relating to that label on an ongoing basis. As with UK AIFs and UK UCITS, portfolio management offerings may also use the sustainability-related terms set out in the ESG Sourcebook if they comply with the naming and marketing requirements. The rules will apply in the same way to such portfolio management offerings; they will need to have sustainability characteristics that are accurately reflected in the name, and the portfolio manager will be required to publish consumer-facing disclosures for the offering as well as an explanation of why a label has not been applied.

It should be noted that, in the context of the proposals, the wider definition of “portfolio management” is applied, and therefore includes managing investments and, from a private markets perspective, advising on investments on an ongoing basis. However, the scope is limited to such activities carried on from the UK, by a UK FCA-regulated firm, for UK retail investors only (i.e., managed portfolios and discretionary wealth management services) and does not capture portfolio management undertaken for funds, such as on a delegated basis.

The consultation closes on 14 June 2024. The FCA intends to publish final rules in the second half of 2024 with the rules coming into force (as with the rules for UK UCITS ManCos and AIFMs) on 2 December 2024.

It should also be noted that HM Treasury announced earlier this year that they would be consulting on extending SDR to include overseas funds recognised under the UK’s overseas fund regime, such as recognised EEA UCITS.

Anti-Greenwashing Rule

In tandem with its publication of proposals on the extension of SDR to portfolio managers, the FCA confirmed final guidance to help firms comply with the new anti-greenwashing rule. This new rule requires firms to ensure that any sustainability-related claims they make about their products and services are fair, clear, and not misleading. Both the rule and the guidance come into force 31 May 2024. The guidance, in summary, provides that sustainability references should be correct and capable of being substantiated, clear and understandable, complete (no important information should be left out) and comparisons made to other products or services should be fair and meaningful. A number of helpful examples are provided to assist firms to apply the guidance.

How we help

The ESG landscape is evolving at a rapid pace and requires additional resources to meet regulatory expectations.

ACA’s ESG Advisory Team can help you understand how these and similar upcoming rules that may impact your firm and assist with preparing for any changes in disclosure requirements

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