Implementing SDR is not like Consumer Duty
The Financial Conduct Authority’s policy statement and final rules on Sustainability Disclosure Requirements (SDR) and investment labels, published last November, contained a number of different implementation dates, ranging from the end of May 2024 to December 2026.
Although the timeline is longer, it may feel similar in nature to the implementation of the Consumer Duty last July, which came with a number of interim dates ahead of the final start date of last July.
Don’t be fooled, however, as each of the dates for SDR is a fixed milestone, whereas the Consumer Duty is a principle that firms need to keep improving on and the interim dates were indications of when certain actions should have been done to ensure readiness by the end of July.
Failure to adhere to the rules on SDR by the dates given would result in a breach, whereas the Consumer Duty is a principle that underpins how regulated firms operate in general, and which firms should constantly strive to improve on.
The only exception to this is that funds may start to use sustainability labels any time between 31 July and 2 December this year. By 2 December, any funds claiming sustainability characteristics, whether or not they have a label, need to publish consumer-facing and pre-contractual disclosures.
The deadlines are not start dates
Some fund groups announced, after the Consumer Duty came into force last July, that they were looking to start making changes to their marketing collateral to bring it into line, for example by removing jargon.
That sort of timing would not satisfy the SDR. 2 December 2024 is also the deadline for funds to adopt the naming and marketing rules. From that point on, a fund will only be able to use any term that implies it has sustainability characteristics in its name and/or its marketing collateral if it has a label or if those characteristics are material to the fund.
See also: – SDR: Three major impacts to look out for in 2024
Ironically, funds claiming sustainability characteristics, but without a label, will not be permitted to use the words “sustainable” or “sustainability” and if they don’t have the Sustainability Impact label, the word “impact” is also off limits.
The time between the end of July and the beginning of December should help fund groups ensure they have all their ducks in a row in respect of their sustainable funds.
Few groups have indicated that they will be ready to adopt a label from the earliest possible date, because there is a lot to do before using a label – the fund objective, investment policy and strategy may need to be updated; groups will need to identify a “robust, evidence-based standard that is an absolute measure of sustainability”, with independent assessment (although this could be internal); adopting a label would immediately trigger the need to produce consumer-facing and pre-contractual disclosures for the fund, and the pre-contractual disclosure needs to be added to the prospectus.
The date a fund group starts using a sustainability label for one of its funds also starts the clock ticking for later product disclosures. The first ongoing product-level disclosure – known as Part B – must be published 12 months after the first pre-contractual disclosure (which forms Part A of the sustainability report if the product does not have a prospectus or similar document). That means from 31 July 2025 and by 2 December 2025 at the latest.
The consumer-facing and pre-contractual disclosures for sustainability funds and, where applicable, the ongoing use of the label must also be reviewed at least every 12 months.
Fund platforms and advisers
While a fund group may choose to wait until December before using a fund label and publishing its disclosures, there is more pressure on distributors, such as fund platforms. They need to ensure that any labels and consumer-facing disclosures of any early-adopter funds are clearly displayed for retail investors, so their deadline is the one chosen by the first labelled fund.
Fund platforms also have a fixed deadline of 2 December 2024, by which time they will need to place a notice alongside any overseas funds that have a sustainability term in their name to make it clear that they are not subject to the SDR and labelling regime, so may not meet the naming requirements and are not required to provide the consumer-facing disclosures. Of course, things may change, as the FCA is in discussions with HM Treasury about whether overseas funds could be brought into scope of the SDR.
The FCA has set up an industry working group to look at the role of advisers and the skills they require to help consumers identify the right sustainability products for them. Whatever measures that group proposes, advisers will need to ensure that their clients are aware of a fund’s label and they get to see the consumer-facing disclosure, so they themselves will need to be aware of those and keep up to speed with any changes.
Entity-level disclosures
2 December 2025 is a date with triple significance in the world of SDR.
As well as being the latest date by which the first ongoing product-level disclosures must be produced, it is also the date from which eligible clients – those with their own disclosure obligations – may start asking for on-demand information from non-listed unauthorised AIFs, which therefore have not produced public disclosures.
It is also the date by which fund groups with over £50bn of asset need to publish their first sustainability entity report; smaller groups with over £5bn assets follow a year later, by December 2026.
So, there are lots of deadlines and with the FCA’s focus on combatting greenwashing, they should not be treated as either flexible or voluntary. If you have not already started preparing for each of the dates, you should do so now.