FCA Good and Poor Practice – Sustainable Investment Labels

The FCA has issued a further communication designed to support firms implementing the UK’s Sustainability Disclosure Requirements labels (SDR) investment labelling regime. The publication sets out examples of good and poor practice in pre-contractual disclosures for products using one of the four FCA sustainability labels. This latest intervention is less about introducing new rules and more about clarifying supervisory expectations. As firms continue to operationalise SDR, the FCA is signalling that the quality of disclosures not simply the application of a label will be a key focus of ongoing oversight. Importantly, disclosures should reflect the product’s actual holdings and strategy. The FCA emphasises consistency between what a fund says it does and what it invests in. This alignment must be demonstrable and evidenced.

Label-Specific Considerations

While the overarching themes are consistent, the FCA’s observations vary across the four labels.

Sustainability Focus

For products using the Sustainability Focus label, the regulator expects a clearly articulated sustainability objective linked to assets that are already sustainable. Good practice includes defining the environmental or social theme with precision and explaining how assets meet a credible sustainability standard. Poor practice arises where objectives are generic or where references to external frameworks, such as the UN Sustainable Development Goals, are used without demonstrating how investments concretely contribute to those goals. Firms are also reminded to acknowledge potential negative sustainability impacts where relevant, rather than presenting a one-sided narrative.

Sustainability Improvers

The Sustainability Improvers label presents distinct governance and monitoring challenges. Products must invest in assets that have the potential to improve their sustainability profile over time. The FCA expects firms to articulate what “improvement” means in practice. This includes defining baseline standards, identifying measurable milestones, and explaining engagement strategies. Assertions that companies are “on a journey” without credible evidence or structured escalation mechanisms are unlikely to satisfy supervisory scrutiny. Disclosures should also address what happens if improvement does not materialise. An absence of clear escalation or divestment criteria may be viewed as weak product governance.

Sustainability Impact

For the Sustainability Impact label, the regulator focuses on intentionality and measurability. Products must aim to achieve a positive, measurable impact in addition to financial returns. Good practice includes a coherent theory of change, linking capital allocation to defined outputs and outcomes. Firms should explain how their investments contribute to real-world change and how this will be measured over time. The FCA is particularly alert to aspirational language that lacks supporting metrics. General statements about “driving positive change” are insufficient without clearly identified key performance indicators and reporting commitments.

Sustainability Mixed Goals

Products using the Sustainability Mixed Goals label must meet the criteria for each applicable label component. The FCA reminds firms to avoid double counting assets across categories or presenting blended strategies without clearly explaining the allocation approach. Transparency around asset allocation and thresholds is essential to avoid misleading impressions of scale or impact.

Governance, Controls and the Anti-Greenwashing Rule

The guidance must also be read in the context of the FCA’s anti-greenwashing rule. Sustainability claims must be fair, clear and not misleading. This extends beyond marketing materials to core fund documentation. From a compliance perspective, firms should consider whether their product governance frameworks adequately test sustainability claims prior to approval. This includes reviewing whether:

Objectives are objectively measurable.
Supporting data is reliable and documented.
Engagement strategies are formalised and monitored.
Disclosures are consistent across prospectuses, KIIDs, websites and marketing communications.

Internal challenge functions, including Compliance and Risk should be actively involved in reviewing sustainability narratives to ensure they reflect the operational reality of the strategy.

Practical Implications for Firms

The FCA’s publication serves as a reminder that sustainable labelling is not a branding exercise. It is a regulated classification requiring disciplined documentation, evidential support and ongoing oversight.

Firms should revisit existing labelled products to assess whether their disclosures would withstand supervisory challenge. Particular attention should be paid to:

The precision of sustainability objectives.
The clarity of investment selection criteria.
The articulation of KPIs and reporting mechanisms.
The handling of underperforming or non-improving assets.

As the regulator continues to monitor implementation of SDR, firms can expect increasing scrutiny of how sustainability claims translate into investment decisions and outcomes. In this evolving environment, robust governance, disciplined documentation and careful drafting remain the strongest safeguards against regulatory and reputational risk.

How Complyport can help?

At Complyport, we help firms navigate evolving regulatory and compliance landscapes, translating complex requirements into practical, actionable solutions. Our support is designed to ensure firms are prepared, accountable, and aligned with emerging standards and expectations. 

Compliance Readiness: We assist organisations in assessing current practices against new or evolving regulatory frameworks. This includes identifying gaps, prioritising actions, and preparing board-level briefings or management reports that demonstrate proactive oversight and transparency. 
Governance and Accountability: We help define roles and responsibilities across senior management and key functions to ensure clear accountability. This supports effective decision-making, oversight of processes, and demonstrates alignment with regulatory expectations. 
Data, Controls, and Assurance Frameworks: We support organisations in reviewing data collection, internal controls, and assurance processes. Our guidance ensures that information is accurate, complete, and can withstand scrutiny from regulators, auditors, or stakeholders. 
Regulatory Engagement and Response Support: We guide firms in preparing consultation responses, board papers, and external submissions. This helps organisations articulate their positions, provide evidence of readiness, and demonstrate strategic alignment with regulatory developments.