Larger entities — with assets under management of more than £50bn — will also have to provide entity-level reports from December 2 2025. This means that at Axa Investment Managers, for instance, we will be providing an overall disclosure report that more broadly covers sustainability risks and opportunities, beyond just at a fund level. However, the timing of these will depend on the size and scope of the asset manager in question.
Why now?
In recent years, interest in the sustainable investment space has soared. But it has become hard for end investors to discern and identify products that meet their sustainability investment goals, as well as their financial requirements.
Until now there has been no common framework or definitions for such products in the UK. By providing labelling, disclosure and reporting on sustainability metrics, the regulator is looking to increase transparency, and therefore trust, in the sector.
How does the SDR compare with existing regulations?
A key question is how the SDR compares with existing labelling regimes such as the SFDR.
There has been a benefit for the UK in being a second mover on sustainability disclosure. The SFDR has been criticised for creating quasi-product labelling, but it is the D for “disclosure” in the SFDR that was the driving force behind the intention of the framework. The UK regulator has been able to learn from this experience to hone requirements that should benefit the market and end consumers.
That is not to say one regime is superior to the other — we are yet to see the full implications of the implementation of the SDR in the UK. As is the case with any regulatory framework, it will have its own strengths and weaknesses.
Introduced in 2018, the SFDR is a key pillar of the EU’s sustainable finance programme. As an EU-based business, Axa IM, plus many businesses in the UK from both an asset management and adviser perspective, will be very familiar with the SFDR already and have plenty of experience with it. This gives us a good starting point to compare with the SDR.
Both sets of regulation have similar overall investment objectives — to improve trust and transparency in sustainable investment products and to better allocate capital towards sustainable objectives. The SFDR has similar disclosure elements in place too.
The key difference, however, is the SFDR is a disclosure regime that includes product categorisation, whereas the SDR is a combination of product labelling, disclosure and rules on naming and marketing.
