Implementation challenges slow SDR label adoption, despite transparency gains

Four fifths (80%) of firms surveyed by the Investment Association believe SDR has successfully prevented misleading claims about sustainability products, despite fewer labelled funds than anticipated entering the market in the past 12 months.

The Investment Association’s second annual SDR Implementation Survey compared responses from 50 member firms to understand experiences and intentions regarding the implementation of the new FCA Sustainability Disclosure Requirements (SDR) and Investment Labels rules.

Key findings from the research included:

Over a third of firms have adopted an SDR label, with Sustainability Focus the most popular

• Over a third (39%) of firms surveyed have already adopted a sustainability label for at least one of their funds. However, firms have adopted labels for much fewer funds than intended when comparing figures with last year’s survey, with just 106 labelled funds in the market compared to the anticipated 216.
• Sustainability Focus is the most popular label to date, with 63 funds approved, followed by Sustainability Impact (22), Sustainability Improvers (17) and Sustainability Mixed Goals (4).

Fund labelling process has improved transparency, despite implementation challenges

• Almost all (91%) surveyed firms adopting an SDR label have updated the labelled fund’s investment policy or strategy to be more transparent on the fund’s sustainability approach, and 4 in 5 (83%) have added a sustainability investment objective for at least one fund.
• However, the FCA authorisation process has not been without challenges. Almost half (49%) of firms have at least one fund that they considered adopting a label for but later decided against it, with a third (32%) making this decision after going through the FCA authorisation process. For those firms who successfully applied for a label, formal applications had to be withdrawn and re-submitted three times on average for their first labelled fund.

SDR gives investors a helping hand, but firms are unconvinced it will result in more capital being driven into sustainable funds 

• Nearly two fifths (39%) of firms agree that the SDR regime will make it easier for investors to find and compare non-labelled funds with sustainability characteristics. In addition, over a third (35%) of firms agree that the SDR framework gives sufficient flexibility to accommodate different types of sustainable investment approaches.
• This aligns with recent research from the IA and The Wisdom Council, which found that almost all (94%) retail investors with a propensity for sustainable investing agreed that they would find the labelling regime helpful.
• However, despite SDR helping people to engage with sustainable funds, firms are unsure if SDR will lead to more money invested into these products. Just 14% of firms agreed that the SDR regime will result in more capital flows into sustainable funds over the next three years.

Naming and marketing rules have had a broader impact, as non-labelled funds with sustainability characteristics take a larger market share than labelled funds

• Four-fifths (80%) of survey respondents have non-labelled funds that are subject to additional disclosure requirements under the naming and marketing rules. At least 340 funds fall into this bucket, more than three times as many funds as those which have a label.
• The most common approaches taken by these funds are negative/exclusionary screening (83%), ESG integration (75%) and positive tilt (55%).
• Over half (55%) of firms had to make changes to their funds as a result of the naming and marketing rules, with almost a third (28%) replacing a restricted term with a non-restricted term in the fund name, and a quarter (26%) removing a restricted term from a fund name.

Commenting on the research findings, Miranda Seath, Director of Market Insights at the Investment Association, said:

“It’s encouraging to see the results of our SDR survey - the regime has improved transparency, and labels set a minimum standard for sustainable investing and clearly signpost approaches to investors. This should help to strengthen consumer confidence in choosing sustainable funds. Although there are fewer labelled funds than originally anticipated, a quarter of firms tell us that they will seek labels for funds in the next 1 to 2 years. We expect to see more approved labels for funds throughout 2025, as firms and the regulator get to grips with implementation.

“Whilst our research with investors shows that they see SDR as helpful to compare sustainable funds, our latest implementation survey reveals that there is still doubt amongst firms that this will drive more capital into sustainable products. Moreover, nearly two fifths of firms told us that that the authorisation process took longer than 20 weeks. It is important that the lessons from the first phase of SDR implementation are learnt should the regime be eventually applied to overseas funds and portfolio management services. We continue to look at how SDR works alongside SFDR to push, were possible. for robust and globally compatible standards that enhance investor understanding and trust in sustainable investing.”

Notes to editors

About the research

From March to April 2025, the IA ran a survey of member firms running funds with SDR labels and/or funds with sustainability characteristics. The survey builds on the IA's 2024 research looking at firms' intentions around labels. Drawing on survey responses and using supplementary desk research, the findings analyse the size of the labelled fund market following the end of the temporary flexibility period in April 2025. The research also shows the profile of labelled funds by asset class and IA sector. This year, the IA has also asked member firms to provide insights into their experience of implementing SDR and explores member firm sentiment towards SDR. The IA received 50 responses from member firms.