good point Aya - much of the focus has been on firms challenges in interpreting and getting over the hurdle to use one of the four SDR investment labels. Despite indications of a healthy 'pipeline' for labels in progress, there's still only a handful of approved labels in the market despite much press announcement. The FCA is in listening mode (FCA COO: 'We are in listening mode on SDR' - PA Future) and helpfully has provided the guidance as you've attached from its publication the other day - hopefully they will continue to respond to the myriad of practical queries on how to implement the requirements of the regime going forward. The implementation journey so far has been challenging, as would be expected of any new regime (see 'SDR implementation is far more challenging than we ever anticipated' - PA Future).
In the meantime, however, far less attention has been paid to UK funds which use sustainability related terms in their naming and marketing (e.g. responsible, green, ESG etc) - existing funds are scrambling to comply with these additional requirements. The deadline for this regulation has not changed, despite some limited forbearance for inflight funds in October for those applying for a label i.e, applies next month from 2 December, where they will either need to change their name and /or comply with the additional SDR disclosure requirements, including the new 2 page 'Consumer facing disclosure' document.
There are likely to be hundreds of these 'non-labelled' UK funds captured by 2 December using sustainability related terms - some firms have opted for a wait and see approach or have opted not to apply for one of the voluntary labels and remove sustainability from its fund name (like Stewart Investors have announced, for now at least, Stewart Investors' Pacific Assets trust rules out SDR label adoption). For distributors, this poses several practical challenges on how to integrate these additional disclosures into their investment and advice processes, and make available to their clients the relevant consumer facing disclosures, or sustainability information document. Come 3 December, there should be much more clarity on the extent of SDR labelled vs non-labelled funds, and relevant disclaimers notified for overseas funds that they are not subject to the UK SDR requirements. For now at least (HM Treasury and FCA are still to announce their consultation on the proposed extension of the SDR regime to Overseas funds) - one likely to be tackled next year, along with the proposed extension to portfolio management services final rules and policy statement intended to be published in Q2 2025. Plenty to be getting on with then!
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James Doyle
Director, Green Finance, Investment Management
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Original Message:
Sent: 07-11-2024 10:33
From: Aya Pariy
Subject: Redulations: Latest from the FCA on SDR - November 2024
Latest from the FCA on SDR: November 2024
The Sustainability Disclosure Requirements (SDR) and investment labels regime enters into force on 2 December 2024 and firms have been able to
use investment labels since 31 July 2024. The SDR and investment labels is a new regime, without precedent and so naturally market practice is still evolving.
A key concept of the new regime is that to qualify for a label, specific criteria are required to be met and supported by disclosures.
This work contains illustrative examples and approaches across a selection of labels to showcase how applicants can meet these disclosure
requirements. Much of practice will be relevant across all investment labels. These examples are based on our experience of applications to date and are non-exhaustive but are intended to aid applicants as they prepare their documentation.
It will be interesting to hear from members on how this is evolving and how its impacting your work?
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Aya Pariy
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