FCA enhances SDR for portfolio managers

In a move to bolster transparency and combat greenwashing in financial services, the UK’s Financial Conduct Authority (FCA) has extended its Sustainability Disclosure Requirements (SDR) to encompass wealth management services, including model portfolios. This development, part of a broader consultation paper released today, 23 April, aims to provide investors with clearer insights into the sustainability credentials of their investments.

Expanding the scope of SDR

Originally focused on retail investors, the SDR was first discussed in November 2023. With the latest proposal, the FCA seeks to include portfolio management services under the SDR umbrella. These services cover a range of offerings, from model to bespoke portfolio management, targeting wealth management for individuals and retail investors.

This extension is aligned with the FCA’s ongoing efforts to standardise sustainability information, making it easier for consumers to make informed decisions. Portfolio managers will now need to demonstrate that at least 70% of the gross value of assets in their portfolios meet specified sustainability criteria to qualify for one of the four SDR labels:

  • Sustainability Impact
  • Sustainability Mixed Goals
  • Sustainability Focus and
  • Sustainability Improvers.

Clarity in marketing and compliance

Under the new rules, specific naming and marketing guidelines will apply, especially when products are targeted at a retail audience. Portfolio managers will be required to produce both pre-contractual and ongoing product-level disclosures if they use these labels or employ sustainability-related terms in their marketing.

This measure is particularly aimed at minimising greenwashing—misleading claims about a product’s environmental benefits—thus protecting consumers and enhancing the integrity of the market. The FCA emphasises the need for transparency and accountability, ensuring that sustainability claims are both accurate and substantiated.

Timeline and compliance

The consultation period set by the FCA ends on 14 June, with the anticipation that portfolio managers will start adhering to the naming and marketing rules by 2 December 2024. Furthermore, from this date, large firms managing over £50bn in assets are expected to begin their entity-level and ongoing product disclosures by December 2025, with a subsequent deadline for firms managing over £5bn.

The FCA plans to monitor the effectiveness of these labels and disclosures through its supervisory activities and will conduct a post-implementation review of the SDR and the labelling regime after three years.

Strategic impact and future directions

Sacha Sadan, the FCA’s Director of Environmental, Social, and Governance said, “Confirming the new anti-greenwashing guidance and our proposals to extend the SDR and investment labels regime are important milestones that maintain the UK’s place at the forefront of sustainable investment. Our good and poor practice anti-greenwashing examples will help firms market their products in the right way.”

With these changes, the FCA not only aims to reduce greenwashing but also to support the creation of a more sustainable and transparent market environment. As the landscape of sustainable investing continues to evolve, these regulatory enhancements will play a pivotal role in shaping the practices of asset managers, fund owners, and stewardship professionals, ensuring that the future of investing is both sustainable and ethically governed.

Sign up for weekly insights, including SI Engage and industry news

Top