Overview
Introduced: 2021
Effective from: Phased implementation starting from June 2024
Last modified: Q2 2024 (consultation updates)
Region(s): United Kingdom
About
The UK’s Sustainability Disclosure Requirements (SDR) represent a comprehensive regulatory framework designed to consolidate and enhance sustainability reporting across various sectors, including financial institutions and companies listed on UK-regulated markets.
The SDR aims to streamline sustainability-related reporting into a singular, robust framework that aligns with global standards such as the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards while addressing the unique challenges and priorities of the UK market. The SDR framework emphasizes transparency, accountability, and the prevention of greenwashing through stringent disclosure requirements.
Criteria for compliance
Entities covered
The SDR applies to all UK-listed companies, investment funds, and financial institutions regulated by the Financial Conduct Authority (FCA), including investment managers, pension product providers, and distributors of investment products.
Emissions reporting
- Sustainability focus: Assets that align with environmental or social sustainability standards.
- Sustainability improvers: Assets that may not currently meet ESG standards but are directed toward achieving positive environmental or social impacts.
- Sustainability impact: Assets that aim to make measurable contributions to environmental or social outcomes.
Compliance timelines
- June 2024: Initial enforcement of regulations concerning product labels, disclosures, and marketing begins.
- June 2025: Full implementation of detailed product-level and entity-level disclosure requirements for firms with assets under management (AUM) exceeding £50 billion.
- December 2026: Entity-level disclosure requirements for firms with AUM exceeding £5 billion will come into force.
Disclosure requirements
Reporting mechanism
- Companies and financial institutions must provide detailed pre-contractual and annual sustainability disclosures, including information on their sustainability objectives, performance against these objectives, and their approach to sustainability risks and opportunities.
- Disclosures must be aligned with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations and the IFRS Sustainability Disclosure Standards. The reports must be accessible to the public and subject to independent verification.
Third-party auditing
Independent verification of sustainability disclosures is required to ensure the accuracy and reliability of the information provided. This process is designed to prevent greenwashing and to maintain the integrity of the financial sector’s sustainability claims.
Penalties for non-compliance
The FCA has introduced an anti-greenwashing rule that applies to all FCA-regulated firms.
Violations of the SDR, including misleading sustainability claims or failure to comply with reporting requirements, may result in significant penalties, though specific amounts are determined based on the nature and severity of the noncompliance.
