Are You SDR Ready?

TGE Launches New Sustainability Disclosure Requirements Assessment Service

The FCA has now published its Sustainability Disclosure Requirements, setting out comprehensive rules and guidance aimed at raising the bar on sustainable finance practices. The regime will lead to a step change in the way that UK asset managers describe and disclose information on the extent to which they are pursuing environmental and social objectives.

What are the New SDR Rules?

The SDR comprises of product labels, naming and marketing rules, requirements for both summary and detailed disclosures, as well as anti-greenwashing measures designed to increase trust and confidence in the market.

There is a rapid timeline for implementation – with firms able to use the labels from mid-2024 onwards.

What is TGE’s SDR Assessment Service?

TGE provided detailed feedback during the SDR consultation phase, as well as supporting clients with their authorised fund applications in anticipation of the new labels. Now that the new rules have been published, our SDR Assessment service helps fund managers to comply with the new rules.

For each investment product, we can carry out either:

  • gap analysis to ensure products are positioned to meet the SDR criteria and disclosure requirements, as well as providing guidance on which label is most appropriate for the product; or
  • Independent verification to give confidence the qualifying criteria have been applied correctly and meet the requirements of the chosen sustainable investment label.

Both types of assessment provide bespoke recommendations on how to strengthen alignment with SDR based on the client strategy and asset class.

To find out more, please contact us

SDR in Brief

SDR applies to UK asset managers with products seeking positive sustainability outcomes. As long as qualifying criteria are met, firms can use one of four sustainable investment labels for each product:

  • ‘Sustainability Focus’ products invest in assets that are environmentally and/or socially sustainable
  • ‘Sustainability Improvers’ products invest in assets that have the potential to improve environmental and/or social sustainability over time
  • ‘Sustainability Impact’ products aim to achieve a pre-defined positive and measurable impact in relation to an environmental and/or social outcome
  • ‘Sustainability Mixed Goals’ invest in accordance with a combination of the sustainability objectives for the other labels

Naming and marketing rules ensure the use of sustainability-related terms is accurate. A tiered approach to disclosure means that retail investors must be provided with accessible information on the product’s sustainability profile and performance, while more detailed disclosures are primarily aimed at institutional investors.

Firms can begin using the labels from 31 July 2024, with disclosures published 12 months after the label is first used. Detailed on-demand disclosures to eligible clients should be provided from 2nd December 2025 onwards.

Deep Dive: What Will Impact Funds Have to Do?

SDR sets out restrictions governing the use of the term ‘impact’. In order to classify as a Sustainability Impact product and use the FCA’s trademarked logo, products will have to meet a set of specific criteria (in addition to the general criteria required of all in-scope products). These include:

  • Theory of Change that demonstrates how investment activities and assets are expected to contribute to positive impact
  • Robust methods for measuring and reporting on impact performance

The onus is on firms to self-classify and ensure their approach stands up to scrutiny. Sustainability Impact products may therefore find specialist external support helpful in areas such as:

  • Practical ways to meet the SDR obligation to measure and report on how investment activities contribute to achieving impact (i.e. investor contribution) – which is different from the current practice of primarily focusing on the impact of underlying assets.
  • Developing a Theory of Change – a tool that may be unfamiliar to many investment professionals – and making decisions about the appropriate level of detail and whether to set it at the asset and/or product levels.
  • What might credibly count as ‘robust’ methods for measuring and demonstrating positive impact, covering issues such as target setting, the use of sustainability thresholds and alignment with existing impact reporting norms.

The Good Economy is dedicated to enhancing the role of business and finance in inclusive and sustainable development. TGE operates in the UK and globally as a trusted advisor working at the forefront of impact and sustainable investing.

Our leading verification and assurance service, Impact Assured, leverages TGE’s extensive knowledge and experience in advising a client-base managing over $35 billion in assets.