SDR and investment labels: how we can help

The FCA's new Sustainability Disclosure Requirements (SDRs) and investment label rules will be phased in between 2024 and 2026 and will impact all UK firms, with a particular focus on the UK buy side industry.

The new rules include an anti-greenwashing rule coming into force from 31 May 2024, impacting all UK FCA authorised firms - details of how we can help you with this rule can be found here.

The other rules introduced by the FCA are predominantly relevant for UK asset managers only, and cover the following areas:

• The introduction of four optional sustainability labels, including qualifying criteria for use of the labels and specific disclosure and reporting requirements. The labels are available for use from 31 July 2024.

• Naming and marketing rules relating to the use of certain sustainability-related terms in product names and marketing materials, and requiring specific disclosure and reporting requirements. The naming and marketing rules will apply from 2 December 2024.

• Specific rules for distributors relating to UK funds (applicable from 31 July 2024) and recognized funds (applicable from 2 December 2024).

• Entity-level sustainability reporting. Reports must be published by in scope firms by 2 December 2025 (for the largest firms) or 2 December 2026 (for remaining in scope firms).

These rules apply to UK fund managers of UK funds (and any FCA authorised firms which distribute UK funds or recognised funds).

The rules do not apply to non-UK funds (including UK managers of non-UK funds). We know HM Treasury is considering extending the application of the rules to EU UCITS funds which are marketed into the UK under the Overseas Funds Regime, and intends to consult on this in Q3 2024.

In addition, the FCA has recently consulted on extending these rules to UK firms providing certain portfolio management services. If implemented the extension of the SDR and investment labels rules would apply to portfolio management services from 2 December 2024.

With limited time before the sustainability labels are available, and with the restrictions on naming and marketing coming into force by December 2024, UK fund managers (and, subject to the consultation, other asset managers) are likely to need external legal support with their SDR projects.

How can Simmons & Simmons help?

Simmons & Simmons is already advising a number of firms on these requirements and assist them in obtaining labels or preparing for the naming and marketing rules, including:

• Assessing eligibility for funds/strategies to obtain a label - including through the use of checklists and documenting the eligibility analysis
• Assisting firms with FCA authorised fund applications whether to make changes necessary to obtain a sustainability label or to meet the naming and marketing restrictions – including approaching the FCA for pre-authorisation discussions
• Preparing appropriate disclosures to meet the FCA requirements
• Updating relevant policies and procedures and preparing guidance documents/ implementation manuals
• Delivering training

We've set out in the below documents a summary of the rules (including how they are proposed to apply to firms providing portfolio management services), the next steps that firms should be taking and how Simmons & Simmons stands ready to advise and assist firms on navigating and implementing this new regime.

You can also watch our SDR webinar series, looking at different elements of the new rules. We'd be delighted to discuss how we can help your firm.

Please get in touch with your regular Simmons & Simmons contact, or any of our specialist Financial Services experts listed.