SDR Explained: Clearer Choices for Sustainable Investors

If you’re investing with sustainability in mind, you want confidence that your money is genuinely supporting positive environmental or social outcomes, not just buying into clever marketing.

That’s where the Sustainability Disclosure Requirements (SDR) come in.

Introduced by the Financial Conduct Authority (FCA), SDR is a set of rules designed to bring greater clarity and consistency to sustainable investing in the UK. In simple terms, it aims to make it easier for you to understand what a fund is really doing when it describes itself as “sustainable”, and to reduce the risk of so-called greenwashing.

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Why were the rules introduced?

Over recent years, demand for sustainable investments has grown significantly. But with that growth has come a wide range of terms - ESG, impact, responsible, sustainable - often used in different ways by different providers.

The FCA introduced SDR to help address this confusion. The new framework is designed to:

• improve transparency around sustainability claims
  

• make it easier to compare products
  

• ensure funds can evidence what they say they do
  
  

In short, if a fund makes sustainability claims, it must now clearly explain how it meets them - and back that up with robust criteria and reporting.

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What funds have to disclose

Under SDR, UK-registered funds that promote sustainability characteristics must provide clearer information for investors.

This includes a short, consumer-friendly disclosure - typically no more than two pages - explaining the fund’s sustainability objective, its approach, and how performance against that objective will be measured. The idea is to provide clear, accessible information without requiring you to wade through pages of technical detail.

There are also more detailed disclosures available for those who want to look deeper, including information at both product and firm level about how sustainability is embedded into investment processes.

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The four sustainability labels

One of the most visible parts of SDR is the introduction of four official sustainability labels. Funds can choose to use a label if they meet strict qualifying criteria.

These labels are not a ranking system, and one is not “better” than another. Instead, they describe different approaches to sustainable investing.

A Sustainability Focus label applies to funds that primarily invest in assets that are already environmentally or socially sustainable.

A Sustainability Improvers label is used by funds investing in companies or assets that may not be fully sustainable today but have credible plans to improve over time. The emphasis here is on progress and engagement.

A Sustainability Impact label is for funds aiming to deliver measurable, positive real-world outcomes alongside financial returns.

Finally, Sustainability Mixed Goals applies to funds that combine more than one of these approaches within a single strategy.

Alongside the labels, SDR also tightens up naming rules. Funds that do not qualify for a sustainability label face restrictions on using terms such as “sustainable” or “impact” in their names or marketing. This helps reduce misleading claims and supports greater consistency across the market.

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How does SFDR fit in?

You may also have come across the Sustainable Finance Disclosure Regulation (SFDR). Unlike SDR, which is a UK regime, SFDR is a European regulation introduced by the European Commission.

SFDR applies to EU-registered funds and classifies them into three broad categories:

• Article 6 – Funds that do not integrate sustainability into their core investment objective.
  
  

• Article 8 – Funds that promote environmental or social characteristics.
  
  

• Article 9 – Funds that have a sustainable investment objective.
  
  

While both SDR and SFDR aim to increase transparency and reduce greenwashing, they are separate frameworks with different criteria and labels. A fund’s SFDR classification does not automatically translate into an SDR label, and vice versa.

If you’re investing in international funds, you may see SFDR classifications alongside - or instead of - SDR labels, depending on where the fund is registered.

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What this means for you

For investors, SDR and SFDR together mean greater clarity and more consistent information.

You should find it easier to understand a fund’s sustainability approach, compare products with similar objectives, and see how sustainability is integrated into the investment process. Importantly, sustainability labels and classifications describe a fund’s approach - they do not guarantee performance. The value of investments can fall as well as rise, and you may not get back what you originally invested.

Within the Quilter Invest app, you can find a fund’s SFDR or SDR classification in the specific fund’s Fact Sheet, usually under Key Facts. This gives you another helpful reference point when assessing how a fund approaches sustainability.

At Quilter Invest, we believe informed decisions are better decisions. These regulations are a positive step towards a more transparent and trustworthy sustainable investment landscape - helping you align your investments with both your financial goals and your personal values.