The UK's SDR: how fund managers must provide sustainability information
Published on 28th Feb 2024
Fund managers must disclose sustainability information in a range of ways under the SDR: who needs to and how?
The Financial Conduct Authority (FCA) published its much-anticipated policy document in November last year setting out the core components of its new sustainability disclosure requirements (SDR) and who the regime is for and who it will impact.
The questions fund managers now need to address about the application of the SDR are what sustainability information must they provide, when must this be provided and how must this be provided?
Which fund managers must disclose?
Fund managers authorised by the FCA must provide sustainability disclosures under the SDR. This includes full-scope UK alternative investment fund managers (AIFMs), small authorised AIFMs, and managers of UK undertaking for collective investment in transferable securities (UCITS) funds (including internally managed UCITS funds). It follows that registered AIFMs, or funds managed by them, do not need to provide any sustainability information.
Sustainability information must be provided relating to the manager's own business as well as for each UK UCITS fund and each UK alternative investment fund (AIF) they manage. The latter are funds that are either authorised by the FCA or unauthorised funds that have their registered office or head office in the UK. Sustainability disclosures are not currently required to be provided for overseas funds. However, UK-based distributors will need to signpost that overseas retail funds are not subject to the SDR.
What, when and how?
The extent of fund level disclosures varies depending on whether a fund is labelled as a sustainable fund or is an unlabelled sustainable fund. The latter are funds that use any term implying the fund has environmental or social characteristics, either in the fund's name or financial promotions relating to it. Funds using a label must provide deeper level of sustainability information compared to unlabelled sustainable funds, and must do so whether they are made available to retail investors or not.
In the absence of FCA clarification, a reading of the rules suggests that unlabelled sustainability funds, which are made available exclusively to institutional investors, do not need to provide any sustainability disclosures other than on-demand information in limited circumstances. The impact on funds that fall outside the two sustainability categories is limited. Non-sustainable funds do not need to provide disclosures (unless stated in the table below).
SDR disclosures for fund managers: an overview table
| Disclosure type | What is this? | When and how must this be provided? | Implementation date |
| Sustainability fund manager reports | These are entity-level reports providing transparency into how the fund manager addresses sustainability risks and opportunities in their operations. | Fund managers of at least one UK fund must publish a sustainability report annually, even if none of their funds are sustainable. Fund managers with less than £5bn in-scope assets under management (AUM) are exempt. | 2 December 2025 for fund managers with over £50bn in-scope AUM. 2 December 2026 for fund managers with between £5bn and £50bn in-scope AUM. |
| Consumer facing disclosures (CFD) | The CFD is a short, standalone factsheet for retail investors, that summarises the fund's key sustainability characteristics. | The CFD must be presented in a prominent place on the fund's webpage or electronic page where the fund is presented, along with other key investor information. | First time a label is used or 2 December 2024 for unlabelled sustainable funds. |
| Signposting a lack of labelling | Unlabelled sustainable funds must signpost that they do not use a label. | In addition to including this information in the CFD, it must also be published in a prominent place on the website, or electronic page where the fund is presented. | 2 December 2024 |
| Pre-contractual disclosures | These product-level disclosures provide further transparency on the product's sustainability objective, strategy, and progress towards meeting its objective, as well as ongoing performance metrics and contextual information. | These disclosures must be provided together with the fund's pre-contractual disclosures; for example, in the fund's prospectus or private placement memorandum. If the fund has no pre-contractual disclosures, they must be included as part of the fund's sustainability report. | 2 December 2024 |
| Sustainability fund reports | These are disclosures providing information similar to pre-contractual disclosures on an ongoing basis. | FCA authorised funds or unauthorised UK AIFs listed on a recognised investment exchange (i.e. public funds) must publish sustainability reports on the fund manager's website annually. | First time a label is used or 2 December 2024 for unlabelled sustainable funds. |
| On-demand sustainability information | This is certain sustainability-related information relating to unauthorised AIFs not listed on a recognised exchange (i.e. private funds), similar to that found in sustainability fund reports for public funds. | Investors in private funds can request "on-demand sustainability information" from fund managers, whether the fund is sustainable or not. However, the request must be in order to satisfy the investor's own sustainability related disclosure obligations. This information must be provided on request within a reasonable period of time in a format that the fund manager reasonably considers appropriate. | 2 December 2025 |
What next?
Fund managers should determine what sustainability information they must produce for each of their in-scope funds and by when. This includes assessing what data and information will need to be harvested and processed, and what steps and procedures should be put into place in order to provide each of the required disclosures within the applicable deadlines. For funds falling outside the sustainability categories, firms should set up procedures to ensure that no terms are unwittingly used implying that the fund has environmental or social characteristics in fund names or financial promotions, as doing so triggers broader sustainability disclosures.
In addition to the disclosure requirements, other aspects of the SDR must also be considered, and engagement with distributors and external stakeholders may be required.
Osborne Clarke comment
As with all new rules, there is currently some degree of uncertainly and debate relating to the exact scope of the SDR regime. Helpfully, the FCA has announced it will run a series of webinars and events to help firms implement the new rules. The FCA will also update a dedicated part of its website with further information on an ongoing basis, as well as collating Q&As.
Fund managers should keep an eye on how the SDR evolves, especially as the regime is set to be expanded significantly to portfolio managers, overseas funds, pension and other investment products, and financial advisers. In addition to a broader reach, the depth of the changes is set to expand over time: laying solid foundations to comply with the regime now is likely to be worthwhile in the long run.
