Accountability in sustainable finance: SDR implications for investors

In the rapidly evolving landscape of finance, sustainability has taken centre stage, reshaping the way organisations approach investment and corporate governance. As we move through 2024, the Sustainable Disclosure Requirements (SDR) have emerged as a pivotal framework, guiding companies and investors towards more transparent, responsible, and sustainable practices.

In this blog, we examine the importance of SDR, its objectives, and the critical role of investment and stewardship teams in driving the financial sector towards sustainability. We also acknowledge the significance of platforms like SI Engage in facilitating active engagement and stewardship.

Understanding Sustainable Disclosure Requirements (SDR)

SDR marks a comprehensive regulatory approach aimed at enhancing transparency and accountability in how financial market participants and financial advisers consider sustainability factors within their operations. Starting on May 31, 2024, this initiative aims to offer stakeholders reliable and comparable sustainability information, promoting informed decision-making and a more sustainable global financial system.

The rules set out by the Financial Conduct Authority (FCA) highlight the growing emphasis on transparency and accountability in sustainability efforts. It reflects a broader recognition of the need for financial markets to operate in ways that are not only economically viable but also environmentally responsible and socially equitable.

Why SDR exists

The rationale behind SDR is multifaceted. Primarily, it seeks to combat greenwashing by ensuring that claims regarding sustainability are substantiated and verifiable. It addresses the growing demand from investors for transparent and credible information on the sustainability performance of their investments.

Furthermore, SDR aims to encourage the integration of environmental, social, and governance (ESG) factors into investment decisions and corporate strategies, facilitating a shift towards a more sustainable economic model.

The goals of SDR are clear and ambitious:

  • Enhance transparency: Make it easier for investors to understand the sustainability impact of their investments.
  • Promote sustainability: Drive capital towards more sustainable businesses and projects.
  • Encourage responsible investment practices: Ensure that ESG factors are consistently and systematically integrated into investment decisions.

The role of investment and stewardship teams

Undoubtedly, investment and stewardship teams play a critical role in the successful implementation of SDR and the broader transition towards sustainability. Their responsibilities include:

  • Due diligence: Conducting thorough ESG assessments and sustainability due diligence on potential and current investments.
  • Active engagement: Engaging with portfolio companies to promote sustainability practices, including better ESG disclosures and performance.
  • Voting and stewardship: Exercising shareholder rights to influence company behaviour and governance structures towards more sustainable outcomes.

The importance of Consumer Duty in the context of SDR

The introduction of the FCA’s Consumer Duty complements the objectives of SDR by ensuring that financial products and services have the consumer’s best interests in mind, including considerations of sustainability. It mandates that firms act to deliver good outcomes for consumers, enhancing the integrity of financial markets and building consumer trust in sustainable products and services.

SI Engage: Tailored reporting tools for SDR Compliance

SI Engage helps your portfolio to meet the rigorous demands of the SDR. Its reporting tools are tailored to facilitate compliance, enabling asset managers and stewardship service providers to plan, track, and report on their engagement activities with precision and ease. This ensures that their efforts are not only effective in promoting sustainability but also transparent and accountable, in line with the principles of SDR.

Indeed, active engagement and stewardship are essential in realising the goals of SDR. Through platforms like SI Engage, the investment community is empowered to conduct meaningful interactions with portfolio companies, driving improvements in sustainability practices and disclosures. By leveraging such tools, stakeholders can significantly contribute to the transition towards a more sustainable and responsible global economy.

The Sustainable Disclosure Requirements, alongside Consumer Duty, underscore the financial sector’s commitment to sustainability and consumer protection. Investment and stewardship teams are at the forefront of this transformation, employing active engagement and stewardship strategies to foster a greener, more equitable financial landscape. Through collaborative efforts and the effective use of technology, such as SI Engage’s tailored reporting tools, the goals of SDR can be achieved, marking a significant step forward in the journey towards sustainability.

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