UK SDR Anti-Greenwashing Rule: What Every Fund Manager and Corporate Needs to Know
Key Takeaways
- The FCA’s anti-greenwashing rule (effective 31 May 2024) applies to ALL FCA-authorised firms, not just those using sustainability labels — this includes asset managers, insurers, banks, and advisers.
- Any sustainability claim must be fair, clear, not misleading, and substantiated by evidence at the point it is made. The burden of proof sits with the firm.
- Four sustainability labels (Focus, Improvers, Impact, Mixed Goals) create a structured framework, but using no label does not exempt you from the anti-greenwashing rule.
- Naming and marketing restrictions prevent the use of sustainability-related terms in product names and marketing materials unless specific qualifying criteria are met.
- Building a defensible evidence register — calculation notes, data sources, governance sign-off — is the single most important compliance action firms can take.
The Regulatory Context
The FCA’s Sustainability Disclosure Requirements (SDR) regime, finalised in PS23/16 (November 2023) and subsequently updated, represents the UK’s primary regulatory response to sustainability-related claims in financial services. Unlike the EU’s Sustainable Finance Disclosure Regulation (SFDR), which adopted a classification approach from the outset, the UK regime is built on a principles-based anti-greenwashing foundation with optional labelling on top.
The anti-greenwashing rule (ESG 4.3.1R) came into force on 31 May 2024. It is not new law in the sense that the FCA’s existing rules already prohibited misleading communications. What is new is the specificity of application to sustainability claims and the FCA’s stated intention to supervise and enforce against greenwashing actively. The FCA’s finalised guidance (FG24/3) provides detailed expectations, and firms that have not reviewed their marketing materials, product documentation, and public communications against this guidance are exposed.
Who Is Caught
This point cannot be overstated: the anti-greenwashing rule applies to all FCA-authorised firms. This is not limited to asset managers or fund operators. It covers:
- Asset managers and fund operators (UK-authorised and recognised overseas funds marketed in the UK)
- Insurance companies and pension providers
- Banks and building societies
- Investment platforms and distributors
- Financial advisers
- Any other firm holding FCA authorisation
If your firm makes any claim, in any channel, that a product, service, or the firm itself has sustainability characteristics, you are subject to the anti-greenwashing rule. This includes website copy, fund factsheets, annual reports, social media posts, pitch decks, and verbal representations to clients.
The Four Sustainability Labels
The SDR labelling regime provides four optional labels that firms can apply to investment products that meet qualifying criteria. From 31 July 2024, these labels have been available for use:
Sustainability Focus. The product invests in assets that are environmentally and/or socially sustainable, determined using a robust, evidence-based standard. At least 70% of the product’s assets must meet the sustainability criteria. The focus is on the current sustainability profile of the assets.
Sustainability Improvers. The product invests in assets that may not currently be sustainable but where the firm has a credible strategy to improve sustainability performance over time. This requires measurable stewardship objectives, clear KPIs, defined escalation processes, and evidence that the firm’s engagement activities are driving real change.
Sustainability Impact. The product invests with the objective of achieving a positive, measurable contribution to environmental or social outcomes. This requires a robust theory of change, evidence that the investment is additional (i.e., it would not have happened without the investment), and quantified impact measurement.
Sustainability Mixed Goals. The product invests in a combination of assets pursuing the objectives described in the other three labels. Each component must independently meet the qualifying criteria of the relevant label category.
Firms electing to use a label must meet detailed qualifying criteria, including ongoing monitoring, consumer-facing disclosures, and pre-contractual documentation. The label is not a one-time application — it imposes continuing obligations.
Naming and Marketing Restrictions
From 2 December 2024, naming and marketing restrictions apply. These prohibit the use of sustainability-related terms in product names and marketing materials unless the product either uses a sustainability label or meets specific conditions.
The restricted terms include (but are not limited to): “sustainable,” “sustainability,” “impact,” “ESG,” “green,” “environmental,” “social,” “responsible,” “ethical,” “climate,” “net zero,” “carbon neutral,” “SDG,” “Paris-aligned,” and similar terms that a reasonable consumer would interpret as indicating sustainability characteristics.
If your product does not carry a sustainability label, you may still use these terms in marketing materials only if the use is factual, not misleading, and does not create a false impression that the product has sustainability as a primary characteristic. In practice, this is a narrow exception, and firms should assume that using sustainability-related terminology in product names will require a label or will invite supervisory scrutiny.
Entity-Level vs Product-Level Disclosures
The SDR regime distinguishes between entity-level and product-level disclosures:
Product-level disclosures apply to products using sustainability labels. These include pre-contractual disclosures (sustainability objective, investment strategy, KPIs), ongoing product-level disclosures (performance against sustainability KPIs, updated at least annually), and a consumer-facing summary document in standardised format.
Entity-level disclosures apply to firms managing assets above a specified threshold. These require firms to disclose how they manage sustainability risks and opportunities at the entity level, their approach to stewardship, and how sustainability is integrated into governance and decision-making. The FCA has confirmed phased implementation, with the largest firms reporting first.
Both levels of disclosure must be consistent. An entity-level claim that sustainability is embedded in investment processes must be substantiated by product-level evidence showing how that integration works in practice.
The Anti-Greenwashing Rule in Practice
ESG 4.3.1R requires that sustainability-related claims made by FCA-authorised firms must be:
- Consistent with the sustainability profile of the product or entity
- Fair, clear, and not misleading — applying the existing standard in COBS 4.2 and PRIN 2A specifically to sustainability claims
- Substantiated by evidence that is available at the time the claim is made
The FCA’s guidance (FG24/3) elaborates on what “substantiated” means in practice. Firms must be able to demonstrate:
- Factual basis. Every sustainability claim must be supported by verifiable data. Stating that a fund “invests in companies leading the energy transition” requires evidence of the selection criteria, the proportion of portfolio companies meeting those criteria, and the methodology for assessment.
- Proportionality. Claims must be proportionate to the actual sustainability characteristics of the product. Describing a fund as “sustainable” when only 15% of holdings meet sustainability criteria is misleading, regardless of how the term is qualified in footnotes.
- Currency. Claims must be kept up to date. A net-zero commitment made in 2022 that has not been updated to reflect progress (or lack of progress) may be misleading by omission.
- Completeness. Cherry-picking favourable metrics while omitting material negative impacts is a form of greenwashing. If your portfolio includes high-emitting sectors, omitting this from your sustainability narrative is misleading.
Common Mistakes
In our advisory work, we observe the same failures repeatedly:
Vague ESG claims. Statements like “we integrate ESG into our investment process” without specifying what that means operationally, how it affects investment decisions, and what outcomes it produces. The FCA expects specificity.
Unsubstantiated net-zero commitments. Declaring a net-zero target without a credible transition plan, interim milestones, or disclosed methodology for calculating progress. Net-zero claims are sustainability claims and must be substantiated.
Cherry-picking metrics. Reporting Scope 1 and 2 emissions reductions while ignoring Scope 3. Highlighting ESG ratings from one provider while omitting lower ratings from others. Showcasing impact metrics for a small subset of the portfolio.
Legacy marketing materials. Websites, factsheets, and pitch decks that pre-date the anti-greenwashing rule and contain sustainability claims that have never been reviewed for compliance. The rule applies to all existing communications, not just new ones.
Conflating aspiration with achievement. Describing what the firm intends to do as if it has already been accomplished. Future commitments must be clearly distinguished from current practices.
Building Defensible ESG Narratives
Compliance with the anti-greenwashing rule is not achieved through legal disclaimers or hedging language. It requires a systematic approach to evidence management:
1. Evidence register. Maintain a central register of every sustainability claim made by the firm, across all channels, linked to the underlying evidence. Each claim should be mapped to: the source data, the calculation methodology, the date of the data, the responsible individual, and the governance sign-off.
2. Calculation notes. Every quantitative sustainability metric (carbon footprint, ESG score, impact measurement) must be accompanied by documented calculation notes covering: data sources, emission factors or conversion rates, scope and boundary definitions, assumptions, limitations, and base year methodology.
3. Governance sign-off. Sustainability claims should be subject to the same approval process as financial promotions. A designated individual with appropriate expertise should review and approve all sustainability-related communications before publication.
4. Periodic review. All published sustainability claims should be reviewed at least annually (and more frequently for dynamic claims such as portfolio carbon intensity) to ensure they remain accurate and current.
5. Version control. Maintain records of what was published, when, and what was subsequently updated. If a claim is corrected or withdrawn, document the reason and retain the original for audit purposes.
Connection to ISSB S1/S2 Endorsement
The UK government is progressing endorsement of IFRS S1 (General Sustainability Disclosures) and S2 (Climate-Related Disclosures) through the UK Sustainability Disclosure Standards (UK SDS). When endorsed, these standards will likely become mandatory for large UK companies and will provide a structured framework for the entity-level sustainability disclosures that the SDR regime requires.
For fund managers, the ISSB standards will affect the investee companies in your portfolios. Companies reporting under S1/S2 will produce standardised, comparable sustainability data that can underpin the sustainability claims you make about your investment products. This is a positive development for the evidence base, but it also raises the bar: if standardised data is available and you choose not to use it, or you use it selectively, that will be difficult to defend.
What Assurance Providers Will Check
While the anti-greenwashing rule does not currently mandate independent assurance of sustainability claims (unlike CSRD), the direction of travel is clear. The FCA has indicated that assurance requirements may be introduced in future. More immediately, assurance providers engaged under CSRD or ISSB frameworks will examine the consistency between corporate sustainability reports and the sustainability claims made in financial product marketing.
Assurance providers will look for:
- Consistency between entity-level sustainability statements and product-level claims
- Evidence that sustainability claims are traceable to underlying data
- Adequacy of internal controls over sustainability data used in marketing
- Completeness of disclosure — including adverse impacts and limitations
- Governance processes for approving sustainability-related communications
Practical Next Steps
If your firm has not yet conducted a comprehensive review of its sustainability communications against the anti-greenwashing rule, the following actions are overdue:
- Conduct a complete audit of all sustainability claims across all channels (website, factsheets, pitch materials, social media, annual reports, regulatory filings)
- Map each claim to its evidence base. Where evidence is insufficient, either substantiate the claim or withdraw it
- Establish an evidence register with clear ownership and update protocols
- Review product names against the naming and marketing restrictions
- Assess whether any products qualify for — or should apply for — sustainability labels
- Train front-office and marketing teams on the requirements
- Integrate sustainability claim review into existing financial promotion approval workflows
Need Implementation Support?
RSustain UK helps firms build evidence-based ESG narratives that withstand regulatory scrutiny. We design evidence registers, review sustainability communications, and build the governance frameworks that ensure your claims are defensible. We work with fund managers, corporates, and their advisers.