Sustainability Disclosure Requirements (SDR) and investment labels

Anti-greenwashing rule and guidance

All FCA-authorised firms must ensure that sustainability-related claims are “fair, clear and not misleading” across their products and services. These claims can include words, symbols, emblems, logos, graphics, images, colour coding systems, and product brand names.

Sustainability ‘investment labels’ and naming and marketing rules

The investment labels and naming and marketing rules under the UK SDR regulation have effectively categorised investment funds into three types to assist consumers in understanding funds with sustainability claims.

1. Sustainability ‘investment labelled’ funds
   
   One of four sustainability investment labels can be applied to funds that meet the qualifying criteria. These labels identify funds by their sustainability investment objectives, approaches and outcomes, whilst aiming to facilitate consumers' comparisons of similar funds.

2. Non-labelled funds, with ESG characteristic
   
   Funds that do not qualify for or have opted out of a sustainability investment label but possess sustainable characteristics (referred to here as non-labelled ESG funds).  These funds must clearly differentiate themselves as not being sustainability labelled funds in order to assist consumers in understanding the claims and making informed investment decisions.

3. Funds with no ESG objective or outcome
   
   Funds which opt out of the investment labels and NMR for non-labelled funds are prohibited from using sustainability-related terms in their product name and marketing materials. This restriction does not apply to the disclosure of short, factual statements that are non-promotional.

Disclosures and reporting

Funds with sustainability characteristics and an investment label, and non-labelled funds with ESG characteristics are required to produce:

• Fund prospectus and KIID

The pre-contractual prospectus document must detail the fund’s sustainability objective and policy, explaining what it is and how it will achieve its sustainability outcomes.

• New 2-page SDR consumer-facing document

A consumer-friendly version of the detailed pre-contractual fund prospectus disclosure. The aim is to make the information consistent, more accessible and easier for the consumer to understand key sustainability, environmental, social and governance features of the fund. The documents should apply Consumer Duty rules to ensure the information meets the needs of retail customers and provide informative and understandable information in order to make a more informed decision.

• Annual product-level sustainability report

The product-level sustainability report will be produced annually, covering a reporting period of 12 months, with the first report produced within 12 months from the date of fund receiving a sustainability label or being marked as a non-labelled fund.

Requirements for distributors of the funds

Distributors continue to play an important role in helping consumers navigate investments, their suitability and to help them make more informed investment decisions. 
 
As part of UK SDR, distributors are required to ensure consumers have the labels and consumer-facing disclosures, along with all other relevant pre-contractual fund material.

• The anti-greenwashing rule applies to all UK FCA-authorised firms who make sustainability-related claims about their products and services.
• The sustainability and naming and marketing rules apply to asset managers with UK-domiciled funds.
• There are also rules for the distributors of investment products to retail investors in the UK.
• As of date of publication, these rules do not apply to portfolio management products and services such as discretionary asset management and pension funds, or funds domiciled outside of the UK but sold in the UK.
• You can refer to the UK FCA (PS23/16) SDR principles for details

Sustainability-related investment claims are claims made about investments that are intended to have a positive impact on the environment or society. This regulation provides a framework to avoid misleading sustainability and greenwashing claims.

Note the extended deadline to implement Sustainability labelled funds from 2 December 2024 to the 2 April 2025.

Source: FCA, 28 November 2023

The investment labels and naming and marketing rules effectively means the UK SDR regulation has created three fund categories for UK investors, which we have summarised as follows:

Effective from 2 December the following Royal London Asset Management UK domiciled funds will be categorised as noted below:

Please note
1) Sustainability ‘investment labelled’ funds to be confirmed on or before 2 April 2025 extended deadline.
2) Any changes made to the fund categories the date of publishing this fund list, should be checked via pre-contractual prospectus material on our fund centre and/or by contacting one of our relationship managers, contact us.

Fund centre Contact us

	Sustainability ‘investment labelled’ funds, extended deadline until 2 April 2025  Royal London Sustainable fund range
We are working closely with the FCA to apply labels to the Sustainable funds.  We expect to be able to disclose more on this topic in the coming months.   No additional disclosures were required for these funds for the 2 December 2024 deadline.

Non-labelled funds, ESG characteristics, effect 2 December 2024  These Funds do not have a UK sustainable investment label as part of the FCA’s UK SDR regulations as we have opted out or because they do not meet the UK regulator’s qualifying criteria.

Fund prospectuses have been updated. A new two-page Consumer Facing Disclosure (CFD) for each fund has been published on our fund centre. These disclosures are aimed at retail investors to provide a summary of the ESG characteristics of the fund and are written in clear, easy-to-understand language.  An annual disclosure for each fund, detailing its sustainability/ESG characteristics, investment strategy, sustainability metrics, and how it manages sustainability risks and opportunities within 12 months.

(1) Effective 2 December 2024 the Royal London UK FTSE4GOOD Tracker Trust was renamed Royal London UK Equity Tracker Trust. Effective 9 December 2024 the Royal London Emerging Markets ESG Leaders Equity Tracker Fund was renamed Royal London Emerging Markets Equity Tilt Fund.

	Funds with no ESG outcome, effect 2 December 2024
These funds are not marketed on ESG characteristics. While the investment manager might consider risks and inefficiencies which include ESG as part of their investment process, these funds do not have formal ESG or sustainability objectives, targets, or metrics.   There have been no changes to prospectus, policy material and there will be no additional disclosures for these funds.

Royal London Asset Management is compliant with the UK FCA’s SDR greenwashing rules.

We conducted a review of our external documentation and marketing material to check for any potential greenwashing and adjusted accordingly where we felt necessary for the 30 May 2024 deadline. This process included:

• Key stakeholders from across our investment teams, marketing and distribution functions in this exercise.
• Updated internal procedures to reflect the changes in regulations to ensure we continue to meet the ongoing requirements.
• Firm-wide training on anti-greenwashing and what to expect from the new SDR regulation to allow for wider visibility of the requirements of SDR.

Additionally, a firm-wide update for the 2 December 2024 Naming and Marketing rules reinforced the ongoing greenwashing checks and procedures that are in place.

Ongoing periodic reviews of processes and assessments 

We continually review and update our processes to ensure regulatory compliance, which has included the implementation of the SDR requirements in line with the regulatory deadlines.

Royal London Asset Management Compliance team operates a monitoring programme with assessments carried out regularly to monitor adherence to regulatory requirements. The testing plan is approved on an annual basis focusing on the areas of the most significant risk.  Periodic analysis of the regulatory changes allows us to identify the new rules applicable to our business and integrate them into our operating environment. Independently operating internal audit function adds the additional layer of assurance as part of their reviews of process effectiveness. 

Risks and controls are reviewed on a six-monthly basis whereby risk owners and control owners must attest that their risks and controls are accurate and effectively operated.