Four in five asset managers believe the UK’s Sustainability Disclosure Requirements (SDR) regime has been effective at preventing misleading claims about sustainability-focused products, according to the Investment Association’s (IA) latest survey.

The IA’s second annual SDR Implementation Survey, based on responses from 50 member firms, revealed that while the number of labelled funds has fallen short of expectations, many in the industry credit the framework with increasing transparency and setting clearer standards for sustainable investing.

So far, just 106 funds have received an official SDR label, compared with the 216 anticipated in last year’s survey. The ‘Sustainability Focus’ label emerged as the most popular, applied to 63 funds, followed by ‘Sustainability Impact’ (22), ‘Sustainability Improvers’ (17), and ‘Sustainability Mixed Goals’ (4).

Nearly all firms that adopted a label said they had updated their fund’s investment strategy to be more transparent, and 83% introduced a sustainability investment objective.

However, the authorisation process posed challenges: nearly half of firms dropped plans to label certain funds, with a third doing so after entering the Financial Conduct Authority’s (FCA) review. On average, firms withdrew and re-submitted label applications three times for their first fund.

While firms remain sceptical that SDR will lead to increased capital flows into sustainable funds – only 14% agreed it would – many see it as a helpful tool for investors.

A significant 39% said SDR will make it easier to compare non-labelled funds with sustainability features, and 35% felt the regime is flexible enough to accommodate diverse investment approaches, the survey disclosed.

Naming and marketing rules have also had a wide-ranging effect. Some 80% of respondents said they have funds subject to these additional disclosure requirements, representing at least 340 non-labelled products. These funds often use ESG techniques such as exclusionary screening (83%), ESG integration (75%) and positive tilting (55%).

Commenting on the findings, Miranda Seath, director of market insights at the association, said: “It’s encouraging to see the results of our SDR survey – the regime has improved transparency, and labels set a minimum standard for sustainable investing and clearly signpost approaches to investors. This should help to strengthen consumer confidence in choosing sustainable funds.”

She added: “It is important that the lessons from the first phase of SDR implementation are learnt should the regime be eventually applied to overseas funds and portfolio management services.”

The FCA announced today it would decide against extending its SDR to cover portfolio management. The move follows the authority’s decision in February to delay the publication of the final rules on applying SDR.

The FCA was expected to publish its final SDR rules to portfolio management in Q2 2025, after delaying them from late 2024, but has now scrapped the publication.

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