Our thinking

The FCA’s new sustainable fund labels

9 May, 2025

Sustainable investing just got a little more…regulated. Under new UK rules from the Financial Conduct Authority’s (FCA) Sustainability Disclosure Requirements (SDR), funds that want to claim environmental or social objectives must now pick from four official labels (Sustainability Focus, Sustainability Impact, Sustainability Improvers, or Sustainability Mixed Goals) and meet certain criteria to be able to use them.  

This is part of the FCA’s attempt to clean up the ESG space, which has been crowded with lofty promises and fuzzy metrics. The idea is simple: if you’re going to sell sustainability, you need to be able to explain it clearly, concisely, and in a two-page document that a retail investor might actually read. 

The move is already having an impact. A survey by the Investment Association found that 80% of asset managers think the new system has reduced greenwashing. Many of the firms that adopted a label said they had to make significant changes to their strategies to meet the bar. 

But there’s a catch. Of the 216 funds expected to adopt a label, only 94 have done so. Why? Turns out, getting one is hard. Firms say the application process is resource-intensive, and the typical application is resubmitted three times before getting approved. 

Meanwhile, in Europe, over 350 sustainable funds shut down last year, and more than 100 quietly dropped ESG buzzwords. The pool may be shrinking, but the hope is that what’s left will be clearer and more credible.  

By Meg Seckel