Sustainability disclosure and labelling regime

We have introduced a package of measures to improve the trust and transparency of sustainable investment products and reduce greenwashing. Read more about what this means for your firm.

December 2024 update
We are consulting on some minor corrections and clarifications to the SDR rules in CP24/26[1]. We encourage anyone who has an interest in SDR or the anti-greenwashing rule, particularly firms who are subject to the rules, to respond by 13 January 2025 via the online form, or email [email protected].

Who this is for

We have introduced rules and guidance to help consumers navigate the market for sustainable investment products.

These are:

An anti-greenwashing rule that applies to all FCA-authorised firms who make sustainability-related claims about financial products and services.
Investment labels, disclosure and naming and marketing rules that apply to UK asset managers.
Targeted rules that apply to distributors of investment products to retail investors in the UK.

See our Policy Statement Sustainability Disclosure Requirements (SDR) and investment labels policy statement[2] (PS23/16) for more information, including Annex 2, which sets out an overview.

We consulted on extending our SDR and investment labels regime to portfolio management (CP24/8[3]). The consultation closed on 14 June 2024.

How this affects firms

We set out below how firms should consider the regime and, where relevant, take steps ahead of the rules coming into effect. This is not an exhaustive list.

All authorised firms should:

Prepare for the new anti-greenwashing rule if they make claims about the sustainability of their products or services, to ensure claims are fair, clear and not misleading
Read our accompanying guidance to the anti-greenwashing rule[4]. The guidance is designed to help firms understand and implement the anti-greenwashing rule. The guidance is consistent with our existing expectations.

UK asset managers should:

Familiarise themselves with the regime, summarised in Annex 2 and set out in full in Appendix 1 of PS23/16[2].
Prepare to meet the relevant requirements in the implementation timeframes.

This includes:

Considering if they wish to label products that aim to achieve positive sustainability outcomes. If so, assessing whether the relevant products meet the qualifying criteria.
Assessing their products against the naming and marketing requirements and preparing to make any changes needed.
Preparing the relevant consumer-facing disclosures, detailed product-level disclosures and other statements where relevant.

Carrying out associated actions such as:

Following the usual fund authorisations and amendments process. The FCA will not be approving use of labels.
Notifying the FCA of use of a label through a form on our online notification and applications system.
Preparing for ongoing actions including annual reviews, updating relevant disclosures, and the steps to be taken when changing a label.

All distributors should:

Prepare to make the labels and consumer-facing disclosures available as soon as reasonably practicable to retail investors, and to keep them up to date following changes made by the firm.
Where relevant, prepare to add a notice on overseas funds to inform consumers that they are not subject to the regime.

More information about what this means for you

We will update the following section to provide clarification to firms on common queries.

Implementation timeframes

The rules and guidance come into force on the following dates:

Sustainability disclosure and labelling regime implementation times

Download infographic as a PDF[5]

Anti-greenwashing rule

From 31 May 2024, firms need to ensure their sustainability references are fair, clear and not misleading, and proportionate to the sustainability profile of the product and service. However, firms subject to the naming and marketing rules for asset managers aren't required to meet those additional requirements until 2 December 2024.

We've issued guidance[4] which is designed to help firms understand and implement our rules. It includes good and poor practice examples to help firms market their products in the right way.

Investment labels

We're introducing 4 investment labels for products with sustainability objectives that aim to improve or pursue positive outcomes for the environment and/or society. For a summary of the criteria, see Annex 2 of PS23/16[5]. This section covers responses to some of the common questions we've received so far. It's not exhaustive.

Process to use a label

If a firm is updating its pre-contractual disclosures to use a label or to meet naming and marketing rules, for example, if amending the investment objective, it will need to submit these updates to us before starting to use the label, or before the naming and marketing rules take effect.

The FCA will not be approving use of the label, but we may need to approve changes to pre-contractual disclosures as a result of the firm’s decision to use the label. Firms are responsible for making their assessment against the criteria for a label. We will apply our usual supervisory and enforcement approaches to this regime.

We remind firms that are subject to requirements in the COLL sourcebook to consider their pre-event notification obligations if making changes to an existing product.

Displaying the label

If using a label, firms can download the graphic from the form on our online notification and applications system, Connect[5]. More detail on the process is set out below.

Downloadable labels

This section is for distributors who are subject to ESG 4.1.16R – 4.1.19R (under our Sustainability Disclosure Requirements (SDR) and investment label regime). It provides distributors with access to the investment labels and has information on their terms of use.

For further information on the role of distributors, please see our Policy Statement (PS23/16 PDF[6]).

The FCA asserts its exclusive rights to the trademarked investment label logos under UK law, prohibiting any unauthorised use, reproduction, or modification without our prior written consent. By downloading the investment label, you agree to these trademark terms of use.

If you have any questions about the use of the labels, please contact your usual supervisor or [email protected].

warning icon

warning icon

warning icon

warning icon

warning icon

warning icon

warning icon

warning icon

Pre-contractual disclosure examples

We've set out illustrative examples (PDF)[15] for each label to showcase how applicants can meet the pre-contractual disclosure requirements.

Notifying us about your use of an investment label for a fund

We set out here how to notify us when you are using an investment label.

You will also find details of how to apply to make associated changes to a fund’s name, investment objectives or policy.

This applies to those funds using or wanting to apply a label under our SDR and investment labels regime.
Firms must meet the requirements of SDR and investment labels rules.
- Labels can be displayed from 31 July 2024.
- Firms must meet the naming and marketing rules from 2 December 2024.
Firms must notify the FCA when using an investment label through the form on our online notification and applications system, Connect[9].
The FCA does not approve labels but firms are required to notify us when they use, revise or stop using a label.

The steps for notifying us are outlined below. Please check which of the 4 scenarios applies to you.

Authorised fund considered to meet the label criteria without changes

An authorised fund which the fund manager considers meets the criteria for a label without the need for changes to the pre-contractual disclosures.

This scenario applies where the fund manager wishes to use a label for an existing fund and considers that this will not require any changes to the fund’s name, investment objectives, policy and/or strategy.

Step 1

Complete the Connect[20] form to notify the FCA and download the label from the form.

Complete one form per label.
Use your firm’s existing Connect registration and access the Firm Notifications section on Connect.
The information you need to provide is the fund’s Product Reference Number (PRN), the investment label you wish to use and the date from when you wish to do so.
There is no fee for this.

Step 2

Display the label and publish the associated consumer-facing disclosure as required under our rules from 31 July 2024.

Authorised fund considered to require changes

An authorised fund which the fund manager considers requires changes to the pre-contractual disclosures to meet the label criteria.

This scenario applies where the fund manager wishes to use a label for an existing fund and considers that this requires changes to the fund’s name, investment objectives, policy and/or strategy.

Changes require an application to be sent to the FCA Fund Authorisations team to amend the fund’s pre-contractual disclosures. A form to notify the FCA of the use of a label must also be completed.

Step 1

To amend an authorised contractual scheme (ACS), authorised unit trust (AUT) or investment company with variable capital (ICVC), you first have to submit the relevant application form and supporting documents to us. Read more about amending an authorised fund[15]. Firms can submit draft applications for our comment before the formal process starts.

Step 2

We will review the proposed changes in the usual way. Note that our approval is only for the proposed changes and not for the use of a label. You can only make the changes after we have approved them and you notify us that the changes have been made.

Step 3

Should your fund amendment be approved, and the changes become effective, complete the Connect[21] form to notify the FCA and download the label from the form.

Complete one form per label.
Use your firm’s existing Connect registration and access the Firm Notifications section on Connect.
The key information you need to provide is the fund’s Product Reference Number (PRN), the investment label you wish to use and the date from when you wish to do so.
There is no fee for this.

Step 4

Display the label and publish the associated consumer-facing disclosure as required under our rules from 31 July 2024.

New fund considered to meet the label criteria

A new fund which the fund manager considers will meet the label criteria.

This scenario applies where the fund manager wishes to use an investment label for a new fund.

An application for a new fund needs to be made to the FCA, and we must also be notified of use of a label.

Step 1

The type of form you need to complete depends on the type of fund e.g. authorised contractual scheme (ACS), authorised unit trust (AUT), investment company with variable capital (ICVC). Check which form you need to complete[14].

Step 2

The FCA Fund Authorisations Team will consider the application as per the usual process which is set out in the link in Step 1 above. The use of a label is not approved by the FCA but we will consider whether the fund and disclosures are consistent with the investment label that the firm wishes to use.

Step 3

Should your fund be approved and ready to launch, complete the Connect[23] form to notify the FCA and then download the label.

Complete one form per label.
Use your firm’s existing Connect registration and access the Firm Notifications section on Connect.
The key information you need to provide is the fund’s Product Reference Number (PRN), the investment label you wish to use and the date from when you wish to do so.
There is no fee for this.

Step 4

Display the label and publish the associated consumer-facing disclosure as required under our rules from 31 July 2024.

In-scope unauthorised AIFs

In-scope unauthorised Alternative Investment Funds looking to use investment labels.

This scenario applies where:

an existing unauthorised Alternative Investment Fund (AIF) is seeking to apply an investment label under the SDR, or
an unauthorised AIF looking to use an investment label is included within an application for authorisation by the FCA as a new, authorised firm

Step 1

Determine whether the unauthorised AIF, whether existing or new, is in scope of the SDR regime using Table 15 of the SDR Policy Statement 23/16 (PDF)[12].

Please note, if an existing unauthorised AIF has a listing of its shares, consideration should be given as to whether any change which may be made to the unauthorised AIF’s published investment policy under the SDR regime is a ‘material change’ which would require approval by the FCA under Listing Rule 15.4.8R.

Step 2

If applying as part of a new firm authorisation, the FCA Wholesale Authorisations Team will consider the application. Read our guidance on this process[13]. Please note we would expect the firm’s approach to ESG and use of labels to be clearly articulated in the firm’s business model description that forms part of the application.

Step 3

The Alternative Investment Fund Manager (AIFM) should then complete the Connect[25] form to notify the FCA and download the label from the form.

Complete one form per label.
Use your firm’s existing Connect registration and access the Firm Notifications section on Connect.
The key information you need to provide is the fund’s Product Reference Number (PRN), the investment label you wish to use and the date from when you wish to do so.
There is no fee for this.

Step 4

Display the label and, where applicable, publish the associated consumer-facing disclosure as required under our rules from 31 July 2024.

An authorised fund which the fund manager considers meets the criteria for a label without the need for changes to the pre-contractual disclosures.

Step 1

Complete the Connect[28] form to notify the FCA and download the label from the form.

Complete one form per label.
Use your firm’s existing Connect registration and access the Firm Notifications section on Connect.
The information you need to provide is the fund’s Product Reference Number (PRN), the investment label you wish to use and the date from when you wish to do so.
There is no fee for this.

Step 2

Display the label and publish the associated consumer-facing disclosure as required under our rules from 31 July 2024.

An authorised fund which the fund manager considers requires changes to the pre-contractual disclosures to meet the label criteria.

This scenario applies where the fund manager wishes to use a label for an existing fund and considers that this requires changes to the fund’s name, investment objectives, policy and/or strategy.

Changes require an application to be sent to the FCA Fund Authorisations team to amend the fund’s pre-contractual disclosures. A form to notify the FCA of the use of a label must also be completed.

Step 1

To amend an authorised contractual scheme (ACS), authorised unit trust (AUT) or investment company with variable capital (ICVC), you first have to submit the relevant application form and supporting documents to us. Read more about amending an authorised fund[22]. Firms can submit draft applications for our comment before the formal process starts.

Step 2

Step 3

Should your fund amendment be approved, and the changes become effective, complete the Connect[29] form to notify the FCA and download the label from the form.

Complete one form per label.
Use your firm’s existing Connect registration and access the Firm Notifications section on Connect.
The key information you need to provide is the fund’s Product Reference Number (PRN), the investment label you wish to use and the date from when you wish to do so.
There is no fee for this.

Step 4

Display the label and publish the associated consumer-facing disclosure as required under our rules from 31 July 2024.

A new fund which the fund manager considers will meet the label criteria.

This scenario applies where the fund manager wishes to use an investment label for a new fund.

An application for a new fund needs to be made to the FCA, and we must also be notified of use of a label.

Step 1

Step 2

Step 3

Should your fund be approved and ready to launch, complete the Connect[31] form to notify the FCA and then download the label.

Complete one form per label.
Use your firm’s existing Connect registration and access the Firm Notifications section on Connect.
The key information you need to provide is the fund’s Product Reference Number (PRN), the investment label you wish to use and the date from when you wish to do so.
There is no fee for this.

Step 4

Display the label and publish the associated consumer-facing disclosure as required under our rules from 31 July 2024.

In-scope unauthorised Alternative Investment Funds looking to use investment labels.

This scenario applies where:

an existing unauthorised Alternative Investment Fund (AIF) is seeking to apply an investment label under the SDR, or
an unauthorised AIF looking to use an investment label is included within an application for authorisation by the FCA as a new, authorised firm

Step 1

Determine whether the unauthorised AIF, whether existing or new, is in scope of the SDR regime using Table 15 of the SDR Policy Statement 23/16 (PDF)[26].

Step 2

If applying as part of a new firm authorisation, the FCA Wholesale Authorisations Team will consider the application. Read our guidance on this process[27]. Please note we would expect the firm’s approach to ESG and use of labels to be clearly articulated in the firm’s business model description that forms part of the application.

Step 3

The Alternative Investment Fund Manager (AIFM) should then complete the Connect[33] form to notify the FCA and download the label from the form.

Complete one form per label.
Use your firm’s existing Connect registration and access the Firm Notifications section on Connect.
The key information you need to provide is the fund’s Product Reference Number (PRN), the investment label you wish to use and the date from when you wish to do so.
There is no fee for this.

Step 4

Display the label and, where applicable, publish the associated consumer-facing disclosure as required under our rules from 31 July 2024.

Criteria

Sustainability objective

To qualify for a label, a product must have a sustainability objective that is clear, specific and measurable, and part of the product's investment objectives. The sustainability objective is an explicit statement of intention to invest 'with the aim of directly or indirectly improving or pursuing positive environmental and/or social outcomes'. This is the foundation of our classification and labelling approach.

As stated in the Policy Statement, referring to broad statements, such as referring to SDGs alone, is unlikely to be specific. This includes statements that the product is 'seeking to achieve positive environmental and/or social outcomes'.

Specific objectives will help consumers understand what particular sustainability goals the product is seeking to achieve. These may be based on certain sustainability characteristics, themes and/or outcomes.

We remind firms subject to the Consumer Duty (PDF)[-16] to consider the appropriate level of detail for their communications. This will support consumers in making effective decisions by selecting products that help them pursue their financial objectives.

Pursuing sustainability outcomes indirectly or directly

In our Policy Statement we clarified that products may aim to improve or pursue positive environmental and/or social outcomes either:

indirectly through investing in assets with sustainability characteristics that either meet (Sustainability Focus) or have the potential to meet (Sustainability Improvers) a robust, evidence-based standard of sustainability;
directly through both the firms’ investment activities and sustainability characteristics of the assets (Sustainability Impact); or
both indirectly and directly (Sustainability Mixed Goals)

To meet the rules, sustainability objectives for a Sustainability Focus or Improvers fund should demonstrate how the product is invested consistently with an aim to meet, or have the potential to meet, a robust, evidence-based standard, for example, the relevant sustainability characteristics or themes that the product has or is investing in. ESG 5.3.3R(2)(b) requires disclosure of the link to positive sustainability (environmental and/or social) outcomes within the pre-contractual disclosure, but there is no requirement for this to be part of the objective.

A Sustainability Impact fund's objective should demonstrate how the product is invested consistently with an aim to achieve a pre-defined, positive, measurable impact in relation to an environmental and/or social outcome, for example, the outcomes that the product is seeking to achieve form part of the sustainability objective.

Sustainability Impact

In our Policy Statement, we acknowledged that all labels have some of the common features associated with impact investing, such as a sustainability goal, key performance indicators (KPIs) and reporting on progress. However, the Impact category is differentiated from Focus and Improvers given the objective of the product is to directly achieve a positive impact in relation to an environmental and/or social outcome. It should therefore be clear to a consumer what outcomes the particular product is pursuing.

Key attributes of the Impact category are theory of change and measurability (both of the product's assets and the investor's contribution).

In accordance with the Handbook definition, the theory of change must demonstrate how and why a desired change is expected to occur in a particular context. While the sustainability objective should clarify what outcomes the product is seeking to achieve, the disclosure should also set out what change is expected to occur in a particular context as well as the how and why. However, this detail is not required in the sustainability objective.

The theory of change must also describe how the firm's investment activities and the product’s assets contribute to achieving the positive and measurable impact.

The pre-contractual disclosure must also include a summary of the robust method used to measure and demonstrate that the investment activities and the product’s assets are achieving a positive environmental and/or social impact.

We have not been prescriptive around whether the method of measurement is qualitative or quantitative, provided that it's robust and details of the impact achieved can be clearly disclosed in the ongoing product-level reporting. While we don’t need specific or quantitative details of the impact achieved in the pre-contractual disclosures, we may ask for contextual details to better understand how a particular measurement will demonstrate that a particular change, impact and/or outcomes are being achieved.

Key performance indicators (KPIs)

The pre-contractual disclosures must include details of the KPIs that will be used to measure progress towards meeting the sustainability objective, and/or other metrics that a retail client may reasonably find useful in understanding the investment policy and strategy for the product.

Where a firm is using a label, KPIs that will be used to measure progress towards meeting the sustainability objective must be disclosed, and other metrics can be disclosed as appropriate.

ESG 5.3.3R(3)(c) requires disclosure of the proportion of assets that are invested in accordance with the sustainability objective (which can be disclosed as an approximate figure or range). This demonstrates that the appropriate proportion of assets have been selected and is not the same as a KPI that demonstrates progress towards meeting the sustainability objective. KPIs should enable a consumer to understand on an ongoing basis whether their investment is achieving the aim of directly or indirectly improving or pursuing positive environmental and/or social outcomes.

We note that for a Sustainability Focus fund, the KPIs may demonstrate that the sustainability objective has been met, as opposed to ongoing progress towards the objective.

We haven't been prescriptive around whether KPIs are qualitative or quantitative, provided that they are robust and evidence-based (as required under ESG 4.2.4R(3)). We may ask for details on the rationale for selecting KPIs.

Stewardship

Stewardship is an important principle that applies to all labels. Firms must identify and disclose the stewardship strategy needed to support the delivery of the sustainability objective.

We recognise that stewardship can take place in different forms. The disclosure should clearly disclose how the stewardship strategy supports delivery of the particular sustainability objective for the fund.

Firms must also set out an escalation plan to be able to take action when assets don’t demonstrate sufficient progress towards the sustainability objective and/or KPIs.

Fund of funds

Our rules don't set out any specific requirements for a fund of funds. Where a fund in scope of the regime invests in other funds, those funds will be treated as assets.

The rules apply as usual to the authorised fund, so the firm is responsible for ensuring the labelling criteria for the fund of funds is met, and must make the associated disclosures or comply with the naming and marketing requirements.

Index-tracking strategies

The qualifying criteria for labels were designed to accommodate both active and passive strategies, where for passive strategies the product tracks an index that meets the criteria for a label.

To meet the criteria for a label, a fund manager must ensure that at least 70% of the gross value of the sustainability products' assets are invested in accordance with the sustainability objective. This doesn’t necessarily mean that the sustainability objective is pursued on an asset-by-asset basis, provided that at least 70% of the gross value of the products' assets are invested in accordance with the sustainability objective.

In the policy statement and final criteria, we clarified that KPIs to demonstrate progress towards the sustainability objective can be either product-wide or asset-specific. Managers will need to determine which KPIs are appropriate for their fund. For example, for index-tracking strategies, product-wide KPIs may be preferred where they align with portfolio selection and monitoring processes.

Managers must be able to demonstrate that 70% of the gross value of assets held within the fund are invested in accordance with the sustainability objective on an ongoing basis. In the policy statement, we acknowledged that assets may be removed or added when an index provider rebalances the index. However, the fund manager retains responsibility for meeting the criteria. Where the fund is judged to no longer be invested in accordance with the sustainability objective, the manager must take steps to restore compliance with the criteria as soon as reasonably practicable.

We haven’t prescribed monitoring processes to ensure that the criteria are met. We noted, for example, that for index funds this may include regular engagement with the index provider. Managers must monitor their funds as appropriate and meet the relevant disclosure requirements.

We acknowledge that stewardship may take place in different forms for different asset classes and strategies. Stewardship can be undertaken at the overall firm-level or on a product-specific basis. Managers must ensure that the investor stewardship strategy and appropriate resources are applied to support the achievement of the sustainability objective, including with respect to index-tracking strategies.

Products tracking Paris-Aligned Benchmarks and Climate Transition Benchmarks can qualify for labels, provided that the qualifying criteria are met. But tracking those benchmarks alone doesn’t necessarily mean they meet the criteria for a label. As with all labels, firms will need to determine whether the fund meets the criteria.

Asset classes

We're not being prescriptive around how certain assets should be treated. If firms determine that sovereign bonds, derivatives, or other assets, meet or have the potential to meet a robust, evidence-based standard of sustainability, they can be in the part of the product that pursues the sustainability objective. Otherwise, they can still be included in the product provided that the firm discloses the type of asset held and why.

The robust evidence-based standard must be an absolute measure of environmental or social sustainability. We're not being prescriptive around asset selection processes.

However, the methodology or approach to select assets may be a relative measure or approach, for example, selecting the 'best-in-class' for a particular sector.

Aligned and aligning financing strategies

Aligned and aligning financing strategies are most likely to be found in Sustainability Improvers products. Both strategies direct financing to assets issued by companies that are still in transition. Therefore, even in the case of an aligned financing strategy, the investment is unlikely to already meet a reasonable investor's threshold for sustainability.

Both aligned and aligning financing strategies (including, for example, products tracking a Paris-Aligned and Climate Transition benchmark) may form part of the asset selection approach in a Sustainability Improvers product, where that product is directed towards a future 1.5°C emissions profile for assets.

Naming and marketing

Firms must ensure they make the necessary changes to meet the naming and marketing requirements by 2 December 2024. If firms are launching new products before this date, they should still be aware of and consider these requirements.

On 9 September 2024, to further help firms to comply with the SDR rules, we announced that we are offering limited temporary flexibility to the naming and marketing rules in exceptional circumstances.

Read our statement[-15]

Scope

Firms using sustainability-related terms only need to meet the additional naming and marketing requirements (including on product naming and producing the associated disclosures and statement) in respect of products for retail clients.

All firms are required to comply with the anti-greenwashing rule and must ensure their sustainability references are fair, clear and not misleading and proportionate to the sustainability profile of the product and service.

Exceptions

Firms can use sustainability-related terms in other contexts where not referring to sustainability characteristics, for example 'economic climate' or 'financial impact'.

Another exception is where a firm is only making short, factual, non-promotional statements, for example a statement that it carries out ESG integration on the product as part of its usual risk management process. However, if, for example, ESG integration or another sustainability-related investment approach is being promoted in its marketing as material to the product, the firm will be required to produce a disclosure and statement to clarify why the product doesn’t have a label.

The purpose of these exceptions is to avoid firms being brought into scope of the rules if they are simply referencing sustainability-related terms in a non-promotional way. The naming and marketing rules are for the use of sustainability-related terms in financial promotions relating to the sustainability characteristics of a particular product. Other materials produced by firms that include sustainability references are likely to be captured by the anti-greenwashing rule.

06/12/2024 : Information added December 2024 update on consultation

02/12/2024 : Document update Update to pre-contractual disclosure examples.

01/11/2024 : Information added Pre-contractual disclosure examples

09/09/2024 : Information added Update on temporary flexibility on 'naming and marketing' rules

19/08/2024 : Link added firm labels added to page to download

01/07/2024 : Information added notifying us about use of an investment label

First published: 02/02/2024 Last updated: 06/12/2024 See all updates

Sustainability disclosure and labelling regime

On this page

Who this is for

How this affects firms

More information about what this means for you

Implementation timeframes

Anti-greenwashing rule

Investment labels

Notifying us about your use of an investment label for a fund

Criteria

Naming and marketing

Scope

Exceptions

On this page

Climate change and sustainable finance[-14]