Initial Adoption of SDR in the United Kingdom: A First Look

The introduction of the Sustainability Disclosure Regulation (SDR) in 2024 marked a milestone in sustainable investing in the United Kingdom. As the scrutiny of sustainability-related investing increases, we ask the SDR is now and where might it be heading. 

What Is SDR and Why Does It Exist?

The UK’s SDR comprises several key components: sustainability labels, enhanced disclosures and anti-greenwashing rules. Its overall objective is to improve trust and transparency in the market for sustainable investment products. In this it differs from the European Union’s Sustainable Finance Disclosure Regulation (SFDR), which also aims to redirect capital flows to more sustainable activities.  

Also different from SFDR is that the SDR introduces four investment labels that can be applied to sustainable investment products. The labels are designed to help investors identify and compare products based on their sustainability objectives and provide more granularity than the Article 8 and 9 categories of SFDR. Further information on the labels can be found here. 

Initial Adoption of Investment Labels

The adoption of investment labels has had a slow start with many asset managers initially finding the approval process of the Financial Conduct Authority (FCA) challenging and the criteria stringent. This led to a cautious approach by many, and by December 2024 only around 30 funds had notified the FCA of their intention to use a label. 

However, there has been a notable increase in uptake since then. As of early 2025, there are now 72 funds that use, or have announced intentions to apply, a label. “Sustainability focus” is currently the most popular label with 29 funds as of January—roughly double that of “sustainability impact.” BlackRock, AXA Investment Managers and Jupiter Asset Management have recently adopted the “Improvers” label for their funds, of which uptake was initially slow. Schroders became the first investor to adopt all SDR labels. 

Reasons Behind the Hesitant Uptake of Investment Labels

Changing investor attitudes.

One of the primary drivers of label adoption is perceived demand from investors. Investors are now more discerning than ever due to greenwashing scandals, increasing asset owner awareness and understanding and maturing sustainable investing integration strategies. The investment labels of SDR are directly responding to this demand.  

Given current anti-ESG discourse, however, the question is whether investors are as invested in sustainable investing in 2025 as they were before. On the one hand, global sustainable funds inflows hit their highest level in Q4 2024, so demand is still there. On the other hand, there is anecdotal evidence that products do not elect to apply labels at the moment due to the ongoing backlash and prefer to wait out the intensity of the current climate.   

Growing compliance costs.

The second half of 2024 saw more than 150 funds change their naming and marketing due to SDR. These funds, who had previously used terms such as “sustainable” and “ESG,” weighed up the costs of integrating sustainable principles into their investment strategies and instead opted for dropping the terms.  

Uncertainty over benefits has also amplified the fear of “first-movers disadvantage.” Firms have reported often feeling unclear about which label is for them and are “greenhushing” due to concern over applying the wrong label and being called out. The FCA even recognised the challenges themselves, allowing a four month extension for some funds into April 2025 due to it taking longer than expected for firms to change fund names. 

Looking Ahead

The initial adoption of SDR investment labels in the UK is a promising step towards greater transparency in sustainable investing. Sustainable investing, although projected to hit $40tn in assets under management by 2030, is still facing significant challenges as the labels come in.   

The short-term underperformance of sustainable investment products may have already taken the edge off the hypothesised competitive advantage of labelling. For SDR to meet its purpose, the cost-benefit equation must make sense to fund managers. With green regulatory uncertainty growing in the EU we expect uptake to remain below expectations.