Naming of funds under SDR continues to pose challenges - FCA gives asset managers limited breathing room

The FCA has confirmed that it will allow asset managers more time to get ready for the “naming and marketing” rules under the Sustainability Disclosure Requirements (SDR) regime, originally due to apply from 2 December 2024.   

The rules (found in ESG 4.3.2R to 4.3.8R in the FCA Handbook) are designed to allow firms that don’t adopt one of the four investment labels - available for use by managers of UK-based investment funds since 31 July 2024 - to still refer to the sustainability characteristics of their funds. Firms will need to ensure that the funds’ names are an accurate reflection of their sustainability characteristics and make certain disclosures.  (See our earlier briefing for a fuller recap of what is required and the related practical challenges.)  

In May 2024, an Investment Association survey found that over a tenth of firms will change the name of at least one of their funds to comply with the naming and marketing rules and that 70% of firms with UK domiciled funds will have non-labelled funds with additional disclosure requirements.  

The FCA says that it has become aware - via engagement with industry and their representative trade bodies - that some asset managers (particularly those that need to apply to use an investment label or change a fund’s name) need more time to meet the higher standards and prepare the disclosures required.  As a result, it will allow firms until 2 April 2025 to comply.  

This more flexible approach may be of limited practical application to many firms, however, as it applies only in “exceptional circumstances” to firms using the terms "sustainable", "sustainability" or "impact" (or a variation of those terms) in the name of a fund, which have submitted a completed application for approval of amended disclosures by 1 October 2024. It does not, for example, apply to funds using other sustainability-related terms, such as “green”, “climate”, or “ESG”.   In any case, asset managers should be complying with the FCA’s guiding principles on disclosures by funds that make ESG-related claims already and, of course, the anti-greenwashing rule.