UK FCA publishes examples of good and poor practice for using labels under the UK Sustainability Disclosure Requirements

On 27 February 2026, the UK Financial Conduct Authority (“FCA”) published examples of good and poor practice for using labels under the UK Sustainability Disclosure Requirements (“UK SDR”) in its publication Sustainability Disclosure Requirements labels: good and poor practice.

The UK SDR were introduced by the FCA in late 2023 to improve trust and transparency around sustainable investment products and reduce greenwashing in the UK market. UK asset managers have been able to use SDR labels since 31 July 2024.  See here for more information about the requirements under UK SDR.

In this new publication from the FCA, examples of good and poor disclosure are set out for each of the four UK SDR labels (Sustainability Focus, Sustainability Improvers, Sustainability Impact, Sustainability Mixed Goals).  This complements the previous guidance published by the FCA on pre-contractual disclosures which have improved as firms have got more familiar with requirements and the number of labels on the market has increased.

Good disclosures are clear, concise, easy to read and understand

The FCA has confirmed that good disclosures are clear, concise, easy to read and understand.  They clarify that this means avoiding duplication and complex terms and explaining terms which are open to interpretation. They are looking for a consistent narrative and logical flow of information which only discloses relevant information for the fund (and doesn’t copy information from peers).

Use the right label for the fund

The FCA also cautions asset managers to use the right label for the fund and accurately reflect what funds invest in (and they request a model portfolio so this can be checked as part of the authorisations process).

Examples of good and poor practice

The full document sets out good and poor examples from each of the components of the labels. Below we set out a few insights from the FCA examples to give a flavour of the examples which the FCA gives. 

Sustainability Focus label

• The examples are clear that the sustainability objective must be clear, specific and measurable: a reference to the Sustainable Development Goals or  to ‘creating value for society’ are unlikely to meet this requirement. Wording should refer to specific characteristics, such as ‘climate change and adaptation’ and give examples.
• When disclosing negative outcomes and conflicts with the objective, asset managers must consider the business units of international conglomerates which may be involved in carbon/water intensive activities, as these need to be assessed and disclosed as long as the attributes of the investment do not conflict with the objective. 
• When assessing the 70% of gross value of the product’s assets invested in line with the objective, asset managers must reference substantiated robust, evidence-based and absolute standards which will stand up to scrutiny.

Sustainability Improvers label

• Key performance indicators (“KPIs”) must show progress towards the fund’s sustainability objective and show the proportion of assets that are ‘on target’ as well as contextual information. 
• Improvers funds’ assets must be selected according to robust-evidence based standards, an example is given of a defence and security company which has a public and Science-based Targets Initiative-validated net-zero target referring to plans to achieve the target, formal accountability for interim and overall targets and annual disclosures to report progress.
• A clear escalation plan must be set out for assets which are not progressing sufficiently towards the sustainability objective, that is how firms will engage with companies which are not making progress and what the timeframe might be as well as consequences for failure to engage on the part of the company.

Sustainability Impact label

• The sustainability objective must be clear and specify pre-defined, measurable positive impacts that the product aims to achieve. Very general statements about delivering social impact through ‘development of thriving cities’ or ‘building an inclusive economy’ will not be enough.
• The theory of change must be set out detailing what is expected in a particular context, how this will be achieved, for example with reference to KPIs. How investment activities will achieve the theory of change should also be set out and measurable, for example will firms engage with companies or direct new capital to meet these objectives.

Sustainability Mixed Goals label

• Here the FCA warned of double counting when setting out the investments meeting sustainability objective criteria for more than one label.  The criteria for each of the labels must be met and the examples in relation to the other labels should be considered in making disclosure.

The examples are a welcome addition to the guidance on pre-contractual disclosures previously published by the FCA.

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This note is intended to be a general guide to the latest ESG developments. It does not constitute legal advice.

Authored by Emily Julier and Rita Hunter.