A majority of UK investment firms have yet to adopt the sustainability labels introduced under the Financial Conduct Authority’s (FCA) new Sustainability Disclosure Requirements (SDR), despite broadly welcoming the initiative’s aims to curb greenwashing and improve transparency, according to new research by the Investment Association.
The SDR regime, which came into force on 31 May 2024, requires firms promoting environmental or social investment strategies to choose from four approved labels: Sustainability Focus, Sustainability Impact, Sustainability Improvers, and Sustainability Mixed Goals. Labelling options became available from 31 July.
Designed to bolster investor confidence and uphold the UK’s leadership in sustainable finance, the regime also introduced strict naming rules, preventing the use of terms such as “sustainable” and “impact” unless substantiated by a fund’s strategy and disclosures.
Yet take-up has fallen short of expectations. Only 94 UK-domiciled funds have opted for one of the FCA’s sustainability labels—well below the 216 initially anticipated. Sustainability Focus has emerged as the most popular, adopted by 63 funds, followed by Sustainability Impact (22), Sustainability Improvers (17), and Sustainability Mixed Goals (4).
By contrast, more than 370 funds managing over £280 billion in assets have complied with the required consumer disclosures without applying for a formal label.
Miranda Seath, director of market insights at the Investment Association, said: “Although there are fewer labelled funds than originally anticipated, a quarter of firms tell us they will seek labels for funds in the next one to two years. We expect to see more approved labels for funds throughout 2025, as firms and the regulator get to grips with implementation.”
While 80% of firms surveyed said the SDR has helped reduce misleading sustainability claims, many cited the burdensome authorisation process as a barrier. On average, fund applications were withdrawn and resubmitted three times before gaining FCA approval.
In response to the new naming restrictions, over half of the firms surveyed have altered fund names—28% by replacing restricted terms, and 26% by removing them altogether.
Despite the regime’s role in improving clarity for investors, confidence in its ability to drive capital towards sustainable investment remains limited. Just 14% of firms believe the SDR will result in increased flows into sustainable funds over the next three years.
