Adrian JohnsonUnderstanding the UK’s Sustainability Disclosure Requirements for 2024
The UK is gearing up to introduce the Sustainability Disclosure Requirements (SDR) in 2024, marking a significant shift in the Environmental, Social, and Governance (ESG) regulatory landscape. This pioneering legislation is set to standardise how asset owners and managers communicate and market their sustainable investment products. Through a mix of anti-greenwashing rules, investment labelling, and disclosures, the SDR aims to assist investors in making informed choices about sustainable finance products and investments.
The Financial Conduct Authority (FCA) has estimated that around 1,400 UK asset managers will fall within the ambit of the disclosure rules, with an additional 5,500 firms impacted by the targeting rules. The legislation aligns with the Government’s ambition for a whole-of-economy approach to the Sustainability Disclosure Requirements and the UK’s goal to achieve net zero by 2050.
Notably, the rules introduce four sustainability labels for funds, mandating that at least 70% of assets meet the label’s objectives. Interestingly, there’s a level of harmony between the UK’s SDR and the EU’s Sustainable Finance Disclosure Regulation (SFDR), allowing data processed in line with the latter to satisfy many of the requirements of the UK’s SDR. This similarity affords a degree of flexibility and interoperability in reporting, potentially easing the burden for firms.
The SDR endorses the International Sustainability Standards Board (ISSB) as the preferred reporting framework, encompassing disclosures from both the Task Force on Climate-Related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB). However, embracing the SDR goes beyond mere reporting. Firms are expected to demonstrate adequate resources, governance, and organisational arrangements to meet the sustainability objective. This includes ensuring data integrity and fostering awareness about these evolving standards.
As the SDR prepares to redefine the landscape of financial product marketing and labelling, firms are urged to download the guide and delve into the intricacies of the SDR. Understanding the SDR, its key takeaways from the final release, the core elements of the regime and its timeline, and the relationship between the SDR and SFDR is crucial. Additionally, firms should consider the three next steps in preparing for the SDR, setting the stage for a more transparent, accountable, and sustainable future in the financial sector.