During CACEIS last roundtable on the UK’s Sustainable Disclosure Requirements, evidence based standards, good data and training were key points of discussion. Since then, asset managers and host authorised corporate directors have gone through the process of seeking SDR labels. In this third SDR roundtable, we focus on some of the key challenges and opportunities.
The current state of play
The Investment Association (IA) gave some important perspective on SDR. Understanding around sustainability still remains a key issue. For example, in one of the IA’s recent surveys, terms such as ‘Paris Aligned’, ‘Stewardship’ and ‘Exclusions’ are still misunderstood by consumers. Advisers were also less confident explaining these concepts, which reinforces the importance of clear explanations.
Furthermore, there is a general consensus that ‘real live examples’ are required of how a fund with an SDR label can make a difference. The lack of regular proof-points can create a real barrier to investment in sustainable funds and products.
To date, there have been over 100 funds that now have an SDR label, which are segmented as follows: Focus (60 funds), Impact (27 funds), Improvers (14 funds) and Mixed Goals (4 funds). This is far lower than the 235 expected during an IA member survey in May 2024.
Unlabelled funds that have sustainability characteristics make up approximately 300 funds. And against this backdrop, around 82 funds have changed their name since June 2024.
Meanwhile, a few hurdles still remain. The Financial Conduct Authority has also confirmed that the SDR extension to Portfolio Management will not be published in the second quarter of this year. No new time was given. Furthermore, the SDR extension to oversees funds being marketed to the UK remains unclear.
It’s not plain sailing
During the discussion, it was raised that client experience has been poor in terms of funds with sustainability in their name. Companies have had to change fund names or remove the ‘sustainability’ from fund names, which has led to confusion in the broader market.
Obtaining SDR labels has also been challenging. For example, it was commented that the FCA has set a very high bar when reviewing and approving SDR labels’ This has required a lot of back and forth during the application process. It was broadly agreed that this has probably resulted in a smaller number of available funds with the SDR label than originally expected at this juncture – more regulatory guidance would be welcomed.
Managing internal expectations has also been an area of focus – "we’ve had to grapple with educating people internally about the process and the high regulatory bar. Some portfolio managers are asking why their funds have not received labels".
One of the major focal points of SDR is evidence based standards. Here, the roundtable participants mentioned that they already had access to good quality data around sustainability. It was important to outline why existing processes could apply to SDR in terms of evidencing the funds sustainability credentials.
Growing awareness
Research conducted by the IA shows that adviser awareness of SDR was high and most expect to use the new labels to guide fund selection. It was also commented that ‘advisers expect to use the Sustainability Mixed Goals the most, reflecting their use of multi-asset products’. However, multi asset funds can also sit in the other label categories, so more education is required.
However, choice still remains limited – "out of the 100 or so funds that have an SDR label, about 25% of those are from two providers’" It was highlighted that ‘once we get to around 200 funds with a label, this might be a good tipping point as there will be a greater mix of providers to choose from’. It was generally agreed that interest in SDR labels will continue to grow.
It also remains important that we see "real live examples of how a fund with an SDR label can make a difference because a lack of detail can create a barrier to investing in sustainability-led funds’".
Matthew Ives
Business Development Director (Asset Managers and ACDs), CACEIS Bank, UK Branch
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