New SDR Regulations in the UK Raise Demands on ESG Product Providers

After the first phase of the U.K.’s Sustainability Disclosure Requirements (SDR), sometimes referred to as the anti-greenwashing law, takes effect at the end of May, a number of significant initiatives will be implemented with the goal of enhancing the sustainability of sustainable investment funds’ naming convention and transparency.

The EU SFDR, which is headed by the European Commission, requires a wide range of financial market players, such as investment businesses, insurance companies, and reinsurance companies, to disclose information linked to sustainability. In contrast to the UK SDR, the SFDR applies to companies that are based in the EU and covers goods that are sold inside the EU, regardless of where the company is located. 

Its main objective is to stop “greenwashing,” which is the practice of inflating or falsifying financial products’ environmental credentials, in order to restore integrity and trust in sustainable financial instruments. In addition, it aims to enhance disclosure requirements and openness in sustainable finance, giving investors access to more data to help them make educated investment choices.

In addition to playing a crucial role in the battle against greenwashing, the SDR and the SFDR are also vital instruments for advancing sustainable investing practices. Both the EU SFDR and the UK SDR play a crucial role in fostering investor confidence and furthering sustainable finance principles by tightening disclosure requirements and increasing transparency.As a result, they support the larger worldwide endeavor to synchronize financial institutions with sustainability objectives and guarantee that investments generate favorable effects on the environment and society.

SDR

Under SDR, financial products will be labelled based on intentionality and on the level of sustainable investments. SDR offers more clarity to funds in determining their appropriate label and potentially will offer investors more certainty in selecting funds that reflect their preferences.

As shown below, the three labels are intended to represent the preferences of various consumers rather than to be hierarchical:

• Sustainable Focus –Assets with a primary focus on social or environmental sustainability are referred to be sustainable. 
• Sustainable Improvers – Sustainable Improvers are assets that, while not now sustainable, are intended to have a good influence on society or the environment in the future. 
• Sustainable Impact – Assets with a sustainable impact are those that make quantifiable investments in real-world issues and are producing socially or ecologically sustainable results.