April 26, 2024

Sustainability Disclosure Rules in the UK: Extending the FCA’s Regime to Portfolio Managers

In our previous alert The FCA’s Sustainability Disclosure Requirements and Labelling Regime (SDR): A Flexible Regime for UK Private Fund Managers, we examined the final framework under policy statement PS23/16, on Sustainability Disclosure Requirements (SDR) and investment labels.

The FCA is now consulting (CP24/8, open for comment until 14 June 2024) on bringing portfolio management products and services into scope of the SDR from December 2024. It has also published its finalised guidance FG24/3 on the anti-greenwashing rule, which applies at the same time this rule comes into force, on 31 May 2024.

CP24/8 extends the SDR and labelling regime to UK portfolio managers. This includes those performing services relating to UK portfolio management services provided to clients on a discretionary (and/or advisory for private markets) basis. It will encompass those who design and manage model and/or customised portfolios as well as those who provide bespoke portfolio management services. It is not, however, intended to apply to UK delegated advisers/portfolio managers of funds.

The Current Regime

The FCA’s Environmental, Social and Governance sourcebook (ESG), extended to include the SDR, contains an anti-greenwashing rule; a voluntary labelling regime for products with a sustainability objective as part of their investment objective; product disclosure requirements; sustainability entity reporting; retail investor-specific requirements on naming and marketing; and consumer-facing product-level disclosures.

Apart from the anti-greenwashing rule (that applies to all FCA-authorised firms), initially the SDR applies only to full-scope and small authorised alternative investment fund managers (AIFMs) whose business is carried out from an establishment maintained by the firm in the UK and in relation to authorised and unauthorised alternative investment funds (AIFs), including unlisted AIFs and feeder funds.

Implications of Extending the Regime: Industry and Firms

The proposed extension to portfolio managers would, the FCA estimates, capture about 400 firms in the UK serving 2.4 million customers and managing £1.4 trillion assets (making up a relatively small 13% of the £11 trillion assets under management (AUM) in the UK’s asset management industry).1 The extended regime is designed to improve competition and integrity in the sustainable investment market and align with the broader government ambition of a transition to a more sustainable economy. A separate HM Treasury consultation is expected to follow on how to bring non-UK funds marketed in the UK into the SDR framework under the Overseas Funds Regime. Pension products, insurance-based investment products, and financial advisers are also expected to be brought within scope in due course.

This is an important time to take stock of how the proposals are likely to affect a portfolio manager’s structures and products as well as what actions portfolio managers must take so they can comply when SDR is broadened. Under SDR, label use is designed for products marketed to retail investors (in which case the naming and marketing and disclosure rules also apply) but can also be used for products offered to professional investors. The FCA is seeking feedback on the appetite for using labels for professional clients and when offering bespoke services, therefore contemplating how widely these rigorous standards are expected to be adopted. We expect those who do choose to apply a label to use it across the board to maximize the expected benefits. But the extent to which this actually happens will be market-led.

Proposed Scope of Portfolio Management

For the purposes of the new limb of SDR “sustainability in-scope business,” portfolio management is that carried out from a UK establishment and in respect of UK and non-UK investments. Services provided to non-UK clients are not caught, and neither is delegated portfolio management to a client that is a fund, an AIFM, or a management company on behalf of a fund. The FCA requests feedback as part of its consultation on whether portfolio management activities carried out from an overseas branch should be caught.

A proposed expansive “portfolio management” definition (aligned with the Task Force on Climate-related Financial Disclosures (TCFD) rules in ESG2) captures managing investments as well as private equity and other private-market activities consisting of either advising on investments or managing investments on a recurring or ongoing basis in connection with an arrangement, for which the predominant purpose is investment in unlisted securities. This differs from the October 2022 SDR and investment labels consultation (CP22/20) that proposed that portfolio management services would fall within scope only if 90% or more of the value of all a manager’s investment products qualify for the same label (in which case the manager would make disclosures for each of the underlying products available to consumers). Following feedback, the FCA concluded that this approach was not workable given that most portfolios are diversified and unlikely to invest only in UK funds with labels. The 70% threshold (applied to the gross value of the assets within the portfolio that are invested in accordance with the sustainability objective and other labeling criteria) now proposed also aligns with the wider SDR regime applicable to UK AIFMs.

How the SDR and Labelling Framework Will Apply to Portfolio Management

In a change to the original proposals, the SDR framework and labeling regime is proposed to be applied to portfolio management on a consistent basis with the rules that apply to other in-scope firms under PS23/16, as set out in broad terms below.

  • General content requirements and restrictions in the form of a general anti-greenwashing rule, with supporting finalised guidance on which the FCA has consulted (see below) that require sustainability-related claims to be consistent with the sustainability characteristics of the product or service and be clear, fair, and not misleading. FCA-regulated UK portfolio advisers (of UK or non-UK AIFMs) will already be subject to this from 31 May 2024, in respect of financial promotions in the UK. 
  • Product disclosure requirements, including rules on the use of four nonhierarchical voluntary sustainable-investment-branded labels for managers who wish to use these labels. The labels are Sustainability Focus, Sustainability Improvers, Sustainability Impact, and Sustainability Mixed goals. For each label, the product must have a sustainability objective as part of its investment objective and at least 70% of product assets, subject to some exceptions, must be invested in accordance with the product’s sustainability objective, with reference to a robust, evidence-based standard that is an absolute measure of environmental or social sustainability. The portfolio manager is responsible for ensuring all assets within its portfolio meet the criteria, including those managed by a third party. The FCA points out that where clients want more than 30% of their arrangement to pursue only financial objectives, the portfolio manager would not be able to use a label but may be subject to the naming and marketing rules. It also sets out some specifics of how portfolio managers should apply the labeling criteria — for instance, they are responsible for selecting KPIs at the level most appropriate for the portfolio. When a portfolio invests in a labelled fund, the portfolio manager is still responsible for determining the standards and asset selection. In our previous alert we discussed in greater detail the labels and criteria (that portfolio managers are also subject to, as for UK AIFMs in scope) that apply.
  • Product disclosure requirements, including pre-contractual disclosures to investors, and ongoing disclosure information. The consultation proposes that portfolio managers will be required to either publish the information or provide it to clients directly, meaning the information would not therefore be subject to the specific provisions for UK AIFMs of unauthorised unlisted AIFs (whose ongoing disclosures can be provided to investors on demand on an annual basis). 
  • Sustainability entity report is required for those portfolio managers with AUM of more than £5 billion (based on sustainability in-scope business, as described above). This report must be based on the TCFD recommendations for governance, strategy, risk management, and metrics and targets. The International Sustainability Standards Board, Sustainability Accounting Standards Board, and Global Reporting Initiative may be relevant for the purpose of these disclosures, as may other reporting frameworks.
  • Retail investor/client-specific consumer-facing disclosures and naming and marketing rules ensuring that the use of sustainability-related terms are accurate. A portfolio manager not using a label but still in scope will have to produce the same disclosures as funds that do have a label, alongside a prominent statement to clarify that its product does not use a label and why.
  • Labels and consumer-facing disclosures will need to be provided by distributors of portfolio management offerings (e.g., financial advisers, platforms, etc.) to retail investors.


The FCA proposes that the rules for portfolio managers come into force from 2 December 2024 and the remaining implementation dates (ongoing product level and entity-level disclosures) are aligned. The phased outcome would therefore be as set out below.

Item Implementation Date
Anti-greenwashing rule (along with final guidance following the consultation on this)
31 May 2024
Sustainability labels (UK AIFMs)
31 July 2024
Distributors of in-scope products marketed to retail investors 
31 July 2024
Consumer-facing product disclosures (for products using a label)
31 July 2024
Pre-contractual disclosures
31 July 2024
Naming and marketing rules
2 December 2024 (or date label first used)
Distributors notice requirements apply
2 December 2024
Product disclosures (for those not using a label)
2 December 2024
Portfolio management brought within scope: labels, disclosures, and naming and marketing rules
2 December 2024
Ongoing product-level disclosures (those subject to the “on demand” regime from 2 December 2025)
31 July 2025 
Sustainability entity report for in-scope firms with £50 billion or more AUM
2 December 2025
Sustainability entity report for in-scope firms with £5 billion or more AUM
2 December 2026
FCA post-implementation review of entire SDR and labelling rules
In 3 years (i.e., 2027)

Those portfolio managers that market sustainable investment products and may have a competitive advantage in applying an FCA label may welcome the short time scale that the FCA intends to bring them into scope. In their feedback, others may request a longer lead-in time to achieve compliance as well as consider if and how they want to use a label for future funds.

Final Anti-Greenwashing Guidance

The FCA found that feedback to this consultation was broadly positive, and it has responded in its final guidance to requests for further sector-specific examples and clarity on its expectations. The FCA reminds firms that it has worked closely with the Competition and Markets Authority and Advertising Standards Authority to ensure consistency in this area and that other FCA principles and the Consumer Duty also apply to sustainability-related claims a firm may make.

Although a non-UK fund manager can (for now) market its products into the UK without having to comply with SDR, and a UK portfolio manager acting as a delegate as an EU AIFM/EU AIF remains outside scope, the anti-greenwashing rule will still be relevant for financial promotions made in the UK. Therefore, all FCA-regulated firms will want to carefully review their communications and marketing materials to ensure that their sustainability claims are fair, clear, and not misleading, and consistent with the sustainability characteristics of that product or service. For instance, a firm will want to make sure that it has a robust product governance framework in place so that it can substantiate any sustainability claims made in respect of specific products and services.

Practical Steps

In anticipation of the final rules taking effect as well as the proposed extension to portfolio management, firms and managers should be thinking about the following key topics (in addition to the action point on the anti-greenwashing rule discussed above):

  • The extent that the firm/manager and its products are in scope
  • How and if the labels may apply to the firm/manager’s existing products
  • Whether the firm/manager wants to use a label for its future products and, if so, any changes it may have to make to do so
  • The information to be disclosed and what information needs to be gathered to comply — including any challenges with data availability and how those challenges can best be managed
  • Inter-operability (i.e., Sustainable Finance Disclosure Regulation disclosures and US Securities and Exchange Commission fund name requirements, EU anticipated guidelines on fund names and proposed ESG labels).

How this is to be approached will also have to be considered alongside the expectation that the rules are likely to apply to overseas products in due course.

To discuss the content of this alert, please contact the authors or your usual Goodwin contact.


[1] References taken from CP24/8.


This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee a similar outcome.