The readiness is all: preparing for the UK’s Sustainable Disclosure Requirements

As asset managers prepare to comply with the UK’s SDR, Funds Europe talks to Rob Wathan from BNP Paribas’ Securities Services business and Benoit Guibourg from Manaos about the reporting challenges ahead

UK asset managers and any other firm marketing their products to UK-based investors are set to face new regulations regarding products making sustainable investment claims. Many of these firms will have already complied with the EU’s Sustainable Financial Disclosure Regulation (SFDR) which came into effect in 2021. Now their reporting requirements are set to increase due to the imminent introduction of the UK’s equivalent – the Sustainable Disclosure Requirements (SDR). But while both the names and objectives of the respective regulations are largely similar, there are some key differences which could present complexities for firms operating in both markets.

Different approaches

The main difference regards the approach adopted by each regulator. Whereas ESMA has produced a very prescriptive piece of legislation, the UK and its Financial Conduct Authority (FCA) typically adopt a principles-based approach to regulation. The legislation has been some time in the making. The first draft was started in 2018, three years after the landmark Paris Agreement and the creation of the UN’s Sustainable Development Goals. A year later, the FCA launched its first consultation on green finance and in 2021, the SDR was proposed. Final rules were issued in November 2023 detailing the fund label regime, product and entity-level disclosure requirements, naming and marketing restrictions and antigreenwashing rules.

“At its heart, the regulation is about protecting transparency so that investors can make proper and informed decisions about their sustainable investments,” says Rob Wathan, Solution Architect & RegWatch Manager, Institutional Investors, for the Securities Services business of BNP Paribas. It is also about preventing greenwashing, says Wathan. “We have already seen the Advertising Standards Agency ban some adverts for misleading claims so asset managers and any other company promoting sustainable investment products need to know the marketing guidelines.”

“The FCA rarely opines on specifics so it is typically left to individual firms to justify
the approach they adopt.” – Rob Wathan, BNP Paribas

The regulation will come into effect in 2024 with a phased implementation. At the end of May, the anti-greenwashing rules take effect. The labelling regime begins at the end of July. And in December, the marketing rules come into force. Both the labelling regime and the marketing rules will come into force with new disclosure requirements. The entity-level disclosure rules will apply to larger firms first (by end of 2025), and then other firms will come into scope by end of 2026.

“Not directly comparable”

For those firms operating across the EU and UK, a pressing issue is the compatibility of the two classification regimes. According to Wathan, they are not directly comparable. “The UK’s approach is more focused and more stringent in some aspects. For example, an Article 8 fund under the SFDR would need to be enhanced to measure up to a label under the SDR” he says. The difference between the two regulations has been a subject of much industry discussion and BNP Paribas has been heavily involved, says Wathan. The firm has been part of the Investment Association’s SDR Implementation Group, which brings together key market participants including asset managers and service providers and engages directly with the FCA to provide feedback on the development of the regulation.

“There has been a lot of analysis and hundreds of queries,” says Wathan. “Essentially it is about interpreting the regulation’s principles and turning them into something concrete. That is the double-edged sword of principles-based regulation. They are less prescriptive but much more open to subjectivity.”

Consequently, asset managers have been poring over the details and nuances of the regulation in search of a consensus. “The FCA rarely opines on specifics so it is typically left to individual firms to justify the approach they adopt,” says Wathan. What is clear is that data will be absolutely critical to justifying these respective approaches. This is a key area for Manaos, a BNP Paribas data management platform whose focus is to simplify how institutional investors and asset managers access ESG information and compute funds or entity ESG metrics. Helping asset managers and institutional investors to navigate these new SDR requirements will take considerable planning, says Manaos product manager Benoit Guibourg. “The SDR will affect all teams – marketing, legal, compliance, reporting, data, product development as well as portfolio managers. The technology teams will also need to know how to build or integrate the ESG tooling,” says Guibourg. The lack of clearly defined metrics from the FCA means that asset managers will have to define their own strategies and objectives. The regulator has suggested that firms should follow some of the well-established frameworks and metrics already in place, such as the ISSB, SASB, and other taxonomy-based metrics.

“While technology will serve as an enabler and accelerator, regulators require asset managers to exercise due diligence in their sustainability disclosure.” – Benoit Guibourg, Manaos

Nonetheless, firms will have to remain agile in whatever approach they adopt, says Guibourg. “Asset managers must navigate not only their current regulatory requirements but also anticipate future and emerging needs relating to sustainability. Additionally, the task of aligning with a multitude of regulations, such as the SFDR, poses a significant challenge; asset managers must balance the complexity of compliance requirements with the need to streamline processes.”

Regulatory readiness: taking an open architecture approach

It is also important that any platform used for data management is technology-agnostic with an open architecture, as the necessity of cross-referencing data points is growing and the variety of data sources is increasing. One way for asset managers to ensure the necessary flexibility, agility and agnosticism is to partner with an external, specialist platform such as Manaos. “Our mission is to make complexity simpler. We help asset managers to streamline the data management process as well as calculate the ESG indicators and prepare the necessary disclosures so that firms can focus on strategy,” says Guibourg.

The Manaos platform is an SaaS-based platform that helps asset managers and investors aggregate investment and extra-financial data, enabling them to produce and share, internally or externally, product or entity-level ESG metrics in a visually intuitive way. It accelerates regulatory readiness, there is a light onboarding process and it allows connectivity with a wide variety of data sources, including most renowned ESG data agencies and more niche players, covering all sustainability themes. “Building on our expertise acquired with SFDR, we provide actionable insights to help asset managers integrate technology, data and ESG to meet their regulatory obligations. If firms choose to partner with a specialised fintech for the technical aspects of their sustainability disclosure, they must still retain the oversight and ultimate responsibility.”

“While technology will serve as an enabler and accelerator, regulators require asset managers to exercise due diligence in their sustainability disclosures,” says Guibourg. “There remains a significant challenge in assessing sustainability data, necessitating a careful evaluation of both its availability and quality for each issuer.”

There is also reputational risk at stake for firms. “It is fundamental that asset managers look at all aspects and justify it and that there is nothing in there that acts against their stated sustainability goals,” says Wathan. “We are looking to help clients on their journey. If they are looking to go into the labelling regime, we can help them and support them in adapting to it.”



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