UK FCA examples of good and poor practice for using labels under SDR

The UK Financial Conduct Authority (FCA) has published a new webpage setting out examples of good and poor practice for using labels under the sustainability disclosure requirements (SDR) regime. These examples are based on the FCA's findings on what it has seen through the fund authorisations process for updating pre-contractual disclosures. The FCA reports that applications to update pre-contractual disclosures have improved as firms have become more familiar with the regime and as the number of labels on the market has increased, with a growing range of asset classes and investment strategies. It nonetheless highlights that there are continuing weaknesses, particularly where it remains unclear whether or how labelling criteria are met or whether disclosures accurately reflect what the fund invests in.

The FCA reiterates that effective disclosures should be clear, concise, easy to read and understand, fund‑specific and accurately reflect what the product invests in. Under the anti‑greenwashing rule, firms must also make sure that any references to sustainability characteristics in disclosures are consistent with the sustainability characteristics of the product. The FCA emphasises that the examples provided are illustrative only, do not replace the rules in the Environmental, Social and Governance Sourcebook and should not be used as templates for disclosure.

The FCA also published a separate webpage explaining how to use sustainability labels as part of the SDR regime. The FCA clarifies that the labels are for funds with environmental or social goals and that firms can choose to use labels if their funds meet the criteria. The guidance relates to the criteria that must be met for funds to use a label, the process for using a label (depending on the type of fund in scope), and provides links to downloadable labels for firms and distributors in scope of the SDR regime. A summary of the general and specific qualifying criteria for each label is set out in Annex 2 to PS23/16, which was published in November 2023.

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