A guide to the Sustainability Disclosure Requirements (SDR)

There are several key components to the SDR regulation including: 

Anti-greenwashing rule - this extends the regulators existing requirements that all communications be ‘fair, clear and not misleading’ to claims made relating to sustainable investment and the sustainability characteristics of investment products and services. It applies to all FCA-authorised firms that make sustainability-related claims.

Investment labels - which are designed to help consumers easily navigate sustainable investment products. It applies to products with sustainability objectives.

Naming and marketing rules - these reflect an acknowledgement that the spectrum of ethical, responsible and sustainable investment extends beyond what can be defined by SDR’s investment labels. Any firm using sustainability-related terms in their naming and marketing material, who do not comply with the labelling regime, must explain; first, that they do not comply with the regime, second; why they do not comply with the regime; and finally, detail their approach to ethical and responsible investment.

Disclosure requirements - these stipulate that in-scope firms produce the following disclosures, where relevant:

- A Consumer-Facing Disclosure, which contains basic, easy-to-understand information for retail investors about the sustainability features of the product,

- A Detailed Product-Level Disclosure, which contains more in-depth information about the sustainability features and characteristics of the product,

- An Entity-Level Disclosure, which requires firms of a certain size (greater than £50bn in Assets Under Management (AUM) from 2nd December 2025 and greater than £5bn in AUM from 2nd December 2026) to provide information relating to their governance, strategy, risk management, and metrics and targets in relation to managing sustainability-related risks and opportunities. 

Yes, Castlefield is in scope.  All firms authorised and regulated by the Financial Conduct Authority (FCA) in the UK are subject to anti-greenwashing rules included in SDR. A key objective of the FCA has been to ensure that all firms who make sustainability related claims, adopt a common language and approach to addressing issues of sustainability, as they relate to investments. Firms that are also UK based asset managers such as Castlefield, are covered by additional rules relating specifically to those investment products and covering investment labels, disclosure and naming and marketing rules.

Aspects of the SDR are already in force, as it’s being introduced in phases. The initial phase commenced from 31st May 2024 and is often referred to as the “anti-greenwashing rules”. These cover the communications and marketing of any financial products or services to ensure that any claims relating to sustainability characteristics are accurate and proportionate to their use within the product or service.

The second phase commenced from 31st July 2024 and introduced “Sustainability Labels” that investment funds can use to help investors to identify products with different, specific “sustainability objectives”.

The naming and marketing rules (NMR) come into effect on 2nd December 2024 in relation to UK-domiciled investment funds. Any funds not adopting a label will be restricted in terms of the information that they can share when talking about sustainability-related terms or language. They will also not be permitted to use some sustainability-related terms in their fund names unless they also have a label.

One of the more visible changes introduced by SDR that investors may see has been the introduction of sustainability labels for funds. The four fund labels introduced are “Impact”, “Focus”, “Improver” and “Mixed Goals” and they require a fund to adopt a specific “Sustainability Objective”.

This requires a fund only to select investments that align with that objective and to report to investors on the progress towards achieving that.

No, at least not initially. The key difference between labelled and unlabelled funds is the adoption of a “Sustainability Objective”. This is critical to how the fund will be invested on a day-to-day basis. There are many potential objectives that could be pursued. However, we have developed over many years an investment approach that emphasises breadth over specificity, using good judgement alongside engagement.

The reason why we are not using a label is we invest in a wide range of companies and funds, from global businesses to smaller UK companies, from equities to direct bonds. We have not yet felt that a broad-based investment approach such as ours is suited to a narrower thematic goal or an approach that relies heavily on data-ranking without an understanding of what a company truly does.

Some companies, particularly larger ones, excel at providing data on their social and environmental footprint or on the good that their products deliver; others do not.  As such, engaging with companies is vitally important to our approach to understand the qualitative steps that a company may be using to deliver their own goals.

Our approach involves substantial engagement with companies to understand their businesses, which must deliver attractive financial opportunities as well as sustainability characteristics in order for us to invest. Under SDR, broader engagement with companies on anything not linked to a fund’s specific Sustainability Objective does not contribute to the assessment of whether it’s meeting the fund objective. This feels like a missed opportunity to us.

We remain close to our clients, understand their values and reflect that in our investment decision-making. This approach has stood us in good stead for the past 20 years and we don’t yet feel that adopting a label will enhance that approach or understanding.

Possibly. Although we will only ever do this where we believe it is in our clients’ best interests to do so. Castlefield has been delivering values-led investment advice and management for over 20 years. In that time, we’ve seen a huge amount of positive change in the sustainable finance industry. Castlefield’s ‘Thoughtful Investor’ approach remains robust, even as we adapt to regulatory developments.

It won’t. Castlefield has worked with the FCA to make the necessary updates to our fund documentation to ensure that we will be able to manage our funds in the same way that we did before and report on the key sustainability characteristics of the funds, as we have in the past.

One change that you may notice is that we’ve decided to rename our ‘Sustainable’ fund range as ‘Thoughtful’, given that the word ‘sustainable’ and associated terms have now become a form of protected language within the UK regulated fund industry.

We’re proud of our identity as the Thoughtful Investor, and our approach will remain intact. ‘Thoughtful’ is a term we believe perfectly encapsulates Castlefield’s approach to ethical, values-led investing:

“Whether we recognise it or not, we all bring our personal values to bear when making choices in life. Castlefield adopts a progressive approach to looking after money, in turn reflecting the individual objectives and values of all kinds of clients - from investors in the investment funds we manage, to private individuals and their personal pensions, to the not-for-profit organisations they establish and help to run.

What sets us apart is that we work closely with clients to help them to understand and define what careful and ethical investment means to them. We then interpret the results in practical ways which never ignore the need for real-world financial outcomes. Our dedicated team is committed to achieving dependable long-term growth through independence and innovation, respect and responsibility.

As an employee-owned business, we make sure that everything we do reflects not only the values we share as co-owners of our own business, but the principles that are important to our clients too. All delivered via a service which is as personalised and accessible as each of our clients wants it to be.

That’s why we’re known as ‘the Thoughtful Investor’ ®.”

As a Thoughtful Investor, managing funds that are registered and domiciled in the UK, Castlefield already makes use of sustainability-related terms in our fund marketing. It’s vital for us to continue to do so in accordance with the new regulatory requirements in order to communicate what we’re doing for our clients and how we’re doing it.

To this end, we’ll also be reporting on the sustainability characteristics of our Thoughtful funds in a new format of document introduced by SDR called a Consumer Facing Disclosure (CFD). This is a short (no more than two sides) report aimed at setting out the main characteristics of the fund and underlying holdings in a format common across the investment industry.