The Sustainability Disclosure Requirements (SDR) is a UK regulatory regime introduced by the Financial Conduct Authority to tackle greenwashing. It establishes four investment labels — Sustainability Focus, Sustainability Improvers, Sustainability Impact, and Sustainability Mixed Goals — that UK funds can apply for if they meet strict, evidence-based criteria. The regime also introduces an anti-greenwashing rule and naming and marketing rules to ensure sustainability claims are clear, fair, and not misleading.
The SDR Explained
The FCA's Sustainability Disclosure Requirements (SDR) came into force in stages from 2024. They were introduced to address a clear problem: research had shown that many funds marketed as "ESG", "sustainable", or "responsible" did not invest in line with what investors reasonably expected. The SDR sets out a consistent UK framework so that consumers can trust the sustainability claims attached to investment products.
The regime has three main components: an anti-greenwashing rule applying to all FCA-authorised firms, four optional sustainability investment labels, and a set of naming and marketing rules that limit when sustainability-related terms can be used in fund names and promotional material.
4
FCA sustainability fund labels
≥70%
Minimum aligned assets per labelled fund
Dec 2024
Anti-greenwashing rule in force
The Four SDR Fund Labels
Each label reflects a distinct sustainability strategy. A fund can only use one label at a time, must meet ≥70% asset alignment with its sustainability objective, and is required to publish ongoing disclosures.
Sustainability Focus
Intent: Invest mainly (≥70%) in assets that are already environmentally or socially sustainable.
Best suited to: Investors who want exposure to companies and projects already meeting a credible sustainability standard.
Example: A global equity fund holding only companies aligned with the Paris Agreement and excluding fossil fuels, weapons and tobacco.
Sustainability Improvers
Intent: Invest mainly in assets that have the potential to become more sustainable over time, supported by stewardship.
Best suited to: Investors who believe engagement and transition finance create more real-world change than divestment.
Example: A fund holding heavy industry or utilities with credible decarbonisation plans, targeting measurable emissions reductions.
Sustainability Impact
Intent: Invest with the explicit aim of achieving a positive, measurable environmental or social outcome.
Best suited to: Investors prioritising additionality — capital that would not otherwise have flowed to the project or company.
Example: A renewable energy infrastructure fund financing new UK wind and solar capacity, with annual impact reporting.
Sustainability Mixed Goals
Intent: Combine two or more of the above approaches within a single fund.
Best suited to: Investors who want a diversified sustainability strategy spanning current leaders, transitioners, and impact assets.
Example: A multi-asset fund blending sustainable equity, transition-focused credit, and renewables infrastructure.
How Quickly UK Funds Are Adopting the Labels
The chart below shows estimated UK fund adoption of each SDR label since the regime came into force. Sustainability Focus has been the most widely adopted, reflecting the maturity of best-in-class screening strategies.
Share of SDR-Labelled Funds by Category
Looking at the current composition of labelled UK funds, Sustainability Focus dominates, but Improvers and Impact are gaining ground as transition finance and outcome-driven strategies mature.
The Anti-Greenwashing Rule and Naming Rules
Even funds that do not adopt an SDR label are subject to the FCA's wider sustainability rules:
Anti-greenwashing rule
Sustainability claims by FCA-authorised firms must be fair, clear, and not misleading. They must be capable of being substantiated with credible evidence, and complete enough not to omit material information.
Naming and marketing rules
Unlabelled UK retail funds may not use terms such as 'sustainable', 'green', 'ESG', 'impact', or 'responsible' in their names or marketing unless they meet defined criteria — including evidence of how the term applies.
Consumer-facing disclosures
Each labelled fund must publish a short, plain-language disclosure summarising its sustainability objective, investment policy, key performance metrics, and stewardship activities.
How to Use SDR Labels in Your Investment Decisions: 5 Steps
Clarify Your Sustainability Goal
Decide whether your priority is exposure to already-sustainable companies (Focus), supporting transition (Improvers), funding measurable outcomes (Impact), or a blend (Mixed Goals).
Match the Label to the Goal
Use the four labels as a shortcut. The label tells you the strategy, intent, and what evidence the manager has been required to produce.
Read the Consumer-Facing Disclosure
Each labelled fund publishes a short summary document. Check the sustainability objective, KPIs, and any negative screens — these tell you what the fund will and won't hold.
Cross-Check With ESG Ratings
An SDR label is a regulatory designation, not a quality score. Cross-reference with independent ESG ratings (MSCI, Sustainalytics) and the fund's holdings to verify it matches your values.
Review Annually
Sustainability disclosures and reporting evolve quickly. Review your funds at least annually to confirm they still hold their label and remain aligned with your objectives.
Green Flags vs Red Flags When Reading a Labelled Fund
Green Flags
- • Clear, specific sustainability objective in plain English
- • Quantitative KPIs published and tracked over time
- • Detailed stewardship and engagement evidence
- • Transparent list of negative screens and exclusions
- • Annual progress report against stated objective
Red Flags
- • Vague objective such as "considers ESG factors"
- • No quantitative KPIs or measurement framework
- • Holdings that contradict the stated label intent
- • Heavy reliance on third-party data with no in-house analysis
- • Lack of any published annual sustainability report
UK SDR vs EU SFDR: Key Differences
UK investors who hold European-domiciled funds will encounter the EU's SFDR — a related but distinct framework. The table below outlines the key differences.
| Feature | UK SDR | EU SFDR |
|---|---|---|
| Type | Labelling and naming regime | Disclosure framework |
| Categories | 4 voluntary labels (Focus, Improvers, Impact, Mixed) | Article 6, 8, 9 disclosures |
| Self-classification | No — labels require evidence and FCA criteria | Yes — funds self-classify |
| Stewardship | Strong emphasis | Less prominent |
| Anti-greenwashing rule | Yes (since Dec 2024) | Partial (under SFDR Level 2) |
| Consumer-facing summary | Required for labelled funds | Pre-contractual disclosures only |
Common Questions About Ethical Investing
What is the FCA's SDR?
The Sustainability Disclosure Requirements (SDR) is a UK regulatory regime introduced by the Financial Conduct Authority to combat greenwashing. It sets out how UK asset managers can describe and label sustainable investment funds, requires evidence-based disclosures, and bans the use of sustainability-related terms unless funds meet defined criteria.
What are the four SDR fund labels?
The FCA's four labels are: Sustainability Focus (≥70% in already-sustainable assets), Sustainability Improvers (assets on a credible improvement path), Sustainability Impact (explicit measurable positive outcomes), and Sustainability Mixed Goals (a combination of the above). Each label requires robust evidence and ongoing reporting.
Do all sustainable funds need a label?
No. A UK fund can still pursue ESG or sustainable strategies without adopting an SDR label. However, since 2 December 2024 the FCA's anti-greenwashing rule and naming and marketing rules apply universally — meaning unlabelled funds cannot use sustainability-related terms unless they meet strict criteria.
How do I check a fund's SDR label?
SDR-labelled funds must publish a consumer-facing disclosure document on their website, summarising the label, sustainability objective, investment policy, and stewardship approach. You can also check the fund's factsheet or your platform's fund profile, where the label is now displayed prominently.
How does SDR differ from the EU's SFDR?
The EU SFDR (Article 6, 8 and 9) is a disclosure framework — funds self-classify based on their characteristics. The UK SDR is a labelling and naming regime — funds must apply to use a specific label and meet defined criteria. SDR places greater emphasis on evidence, stewardship, and consumer-facing language.
Important Information
This article is for information only and does not constitute financial advice. Capital is at risk and the value of investments can fall as well as rise. Regulatory frameworks evolve — always check the FCA's latest guidance and a fund's current consumer-facing disclosure before investing. Lifemap Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority (FCA No. 813341).