21st March 2024

Decoding SDR: Unravelling the Fund Labels

In our previous article, we introduced the Sustainability Disclosure Requirements (SDR) policy statement issued by the Financial Conduct Authority (FCA) and its significance in the realm of sustainable investing. Now, let's delve deeper into one of the central aspects of SDR: the introduction of new fund labels for sustainable funds.

Effective from July 31, 2024, the SDR policy brings forth four distinct labels for sustainable funds, each catering to different investment approaches and objectives. These labels are:

Sustainability Impact: Designed for funds focused on achieving measurable sustainability outcomes, this label emphasises tangible positive impacts on environmental and social sustainability.

Sustainability Improvers: For  funds committed to enhancing the sustainability credentials of assets through engagement and stewardship activities, this label highlights efforts towards driving positive change including within contentious sectors, provided the entity is considered reasonably likely to respond positively.

Sustainability Focus: Reserved for funds investing in assets that meet specific sustainability criteria, defined by the manager. This label signifies a dedication to supporting and maintaining higher sustainability standards within the investment fund or portfolio.

Sustainability Mixed Goals: Combining elements of the above labels, this category caters to funds with multifaceted sustainability objectives, offering flexibility in addressing diverse sustainability challenges which will be particularly useful for multi-asset funds and portfolios.

Accompanying these labels are disclosure requirements aimed at providing investors with comprehensive insights into fund strategies, sustainability objectives, key performance indicators (KPIs), governance arrangements, and stewardship strategies. Moreover, funds adopting these labels must ensure that at least 70% of their assets align with their published sustainability objectives, emphasising a commitment to genuine sustainability practices. In addition, no assets are allowed to conflict with the funds published objectives.

While the introduction of these labels marks a significant step towards enhancing transparency and accountability in sustainable investing, it also poses challenges for fund managers and investors alike. Navigating the intricacies of sustainability goals, disclosure requirements, and alignment with investment strategies requires careful consideration and diligence.

In the final instalment of our series, we will explore the practical implications of these fund labels for advisers and clients, shedding light on the opportunities and challenges they present in the evolving landscape of sustainable investing.

Source: https://www.fca.org.uk/publications/policy-statements/ps23-16-sustainability-disclosure-requirements-investment-labels 

This article is adapted from a longer article.

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Julia Dreblow is a founder of SRI Services and Fund EcoMarket, FCA DLAG member, BSI fund standard lead author and Vice Chair of the new industry-led ‘Adviser Sustainability Group’

Investments, Ethical/ESG