UK SDR label asset class imbalance could curb pension scheme use, FCA acknowledges

Uneven uptake of sustainable fund labels across asset classes under the UK’s Sustainability Disclosure Requirements (SDR) regime could limit pension scheme use of the labels, the country’s financial markets regulator has acknowledged.

Aidan McEvoy, head of department, asset management and funds at the Financial Conduct Authority (FCA), said SDR had helped improve credibility and anti-greenwashing discipline, but said that labelled funds were more common in some parts of the market than others.

“There are certain labels that are more popular than others, and equities are much better represented than fixed income,” McEvoy said.

Speaking at the UK Sustainable Investment and Finance Association (UKSIF) spring conference in Edinburgh this week, McEvoy said the FCA was committed to working with the industry to understand why more fixed income managers or funds were not seeking a label, and whether there were “particular tensions” between certain investment styles or asset classes and the ability to qualify.

Pension funds are not expected to label their own portfolios under SDR, but would need a wider range of labelled funds if they are to build portfolios around them.

“We still think there’s the need for more labelled funds to really build a market and build momentum across the labels, and for our clients to really be able to build products around labelled funds,” said Carlota Esguevillas, head of sustainable investment at EdenTree Investment Management.

She also pointed to fixed income as one area where choice remained limited, adding that there was a need for “more choice” across asset classes, while maintaining the credibility and integrity of the labels.

Asset class gap

As of June 2025, 110 funds were using one of the four SDR labels, according to a 2025 Investment Association (IA) survey.

While the number of labelled funds has fallen short of expectations, many in the industry credit the framework with improving transparency and setting clearer standards for sustainable investing, said the IA.

A Morningstar report from April 2025 on the UK SDR labelled and non-labelled fund landscape showed that global large-cap equity strategies dominate the labelled landscape, while fixed income funds are underrepresented (31% and 4% of total assets, respectively).