With mounting pressure from investors, consumers, and regulators, companies must ensure that their business sustainability claims are transparent, verifiable, and aligned with global best practices. A PwC survey finds 79 percent of investors consider a company’s management of ESG risks and opportunities as an important factor in their investment decision-making. The UK’s Sustainability Disclosure Requirements (SDR) are a crucial step towards greater transparency and accountability in sustainability reporting. Keep reading as we delve into what SDR entails and the key reporting obligations UK businesses must prepare for.
What are the Sustainability Disclosure Requirements (SDR)?
The UK Sustainability Disclosure Requirements (SDR) are a set of regulations introduced by the UK Financial Conduct Authority (FCA) to improve the transparency and reliability of sustainability-related disclosures in the financial sector. Ultimately, the SDR aims to tackle greenwashing by ensuring financial institutions and listed companies provide clear, consistent, and credible information about their ESG activities and investment products.
How the SDR aligns with global standards
The UK’s Sustainability Disclosure Requirements (SDR) are designed to align with leading global sustainability frameworks, ensuring consistency, comparability, and credibility in ESG reporting.
Alignment with the International Sustainability Standards Board (ISSB)
The SDR is expected to incorporate the International Sustainability Standards Board (ISSB) global disclosure standards (IFRS S1 & IFRS S2) to provide a universal baseline for corporate sustainability reporting. This alignment ensures that UK businesses disclose material sustainability risks and opportunities in a way that is consistent with global best practices. By adopting ISSB standards, UK companies can enhance cross-border comparability, making their sustainability disclosures relevant to international investors and stakeholders.
Connection to the Taskforce on Climate-Related Financial Disclosures
A core component of the SDR is its alignment with the Taskforce on Climate-Related Financial Disclosures framework, which has become the international standard for climate-related risk reporting. The TCFD focuses on governance, strategy, risk management, and metrics/targets, ensuring that companies thoroughly assess and report on their climate risks and opportunities. Many other jurisdictions, including the EU, US, Canada, and Japan, are also implementing TCFD-based reporting, reinforcing SDR’s consistency with global financial markets.
Integration with the UK Green Taxonomy & EU Taxonomy
The UK Green Taxonomy, which defines environmentally sustainable economic activities, is heavily influenced by the EU Taxonomy for Sustainable Activities. SDR is expected to align with this taxonomy, providing clear criteria for investment products marketed as sustainable. The alignment allows UK financial institutions to compare and report on sustainability metrics in line with EU regulations. This facilitates seamless cross-border sustainable finance and reduces barriers for UK firms operating in European markets.
Alignment with the EU’s Sustainable Finance Disclosure Regulation (SFDR)
The SDR mirrors key elements of the EU’s Sustainable Finance Disclosure Regulation (SFDR). This regulation mandates that asset managers and financial institutions disclose how ESG factors are integrated into investment decisions. Like SFDR, SDR introduces sustainability labelling and anti-greenwashing measures to ensure investment products meet credible sustainability thresholds. This alignment provides UK investors and financial institutions with greater clarity and trust in the sustainability credentials of financial products, whether in the UK or EU markets.
Strengthening Anti-Greenwashing Rules with Global Best Practices
One of SDR’s standout features is its strict anti-greenwashing measures. These measures ensure that sustainability claims made by businesses and financial institutions are transparent, evidence-based, and verifiable. This initiative aligns with the EU Green Claims Directive, which is aimed at preventing misleading ESG claims. Additionally, SDR supports global initiatives like the US Securities and Exchange Commission (SEC) Climate Disclosure Rule and the Global Reporting Initiative (GRI). Both of these initiatives support corporate accountability in sustainability disclosures. By enforcing rigorous anti-greenwashing measures, SDR helps build consumer and investor confidence in sustainable products and services.
Key reporting obligations under the SDR
The Sustainability Disclosure Requirements UK introduce a set of mandatory sustainability reporting obligations for UK businesses and financial institutions.
Sustainability-related disclosures for UK-listed companies
Publicly listed companies in the UK must disclose material sustainability-related risks and opportunities. The main obligations include:
- Governance: How the company’s board and management oversee sustainability risks.
- Strategy: The impact of climate-related and sustainability factors on business strategy and financial planning.
- Risk management: Processes for identifying, assessing, and managing sustainability risks.
- Metrics and targets: Disclosure of relevant KPIs, carbon footprint data, net-zero targets, and transition plans.
Sustainability labels for investment products
To prevent greenwashing, the SDR introduces a sustainability labelling system for investment funds. Fund managers must categorise their investment products under specific sustainability labels, ensuring that funds marketed as sustainable truly meet ESG criteria. The proposed labels include:
- Sustainable focus: Investments primarily in sustainable assets.
- Sustainable improvers: Funds focused on assets that are improving their ESG performance.
- Sustainable impact: Investments aimed at delivering measurable environmental and social benefits.
Funds that do not meet these standards cannot be marketed as sustainable.
Anti-greenwashing rules for all financial institutions
Financial institutions (including banks, asset managers, pension funds, and insurers) must ensure that all sustainability-related claims are clear, fair, and not misleading. This applies to both marketing materials and public disclosures. Firms must provide evidence-based reporting to support their sustainability claims and avoid exaggerated ESG credentials.
Climate and sustainability risk disclosures for large companies
Large UK companies (both listed and non-listed) will need to report on their climate risks and sustainability performance under SDR. This aligns with the UK’s Green Taxonomy and the Corporate Sustainability Reporting Directive (CSRD) in the EU. Companies must disclose:
- Their carbon footprint (Scope 1, 2, and relevant Scope 3 emissions).
- Decarbonisation targets and transition plans.
- How climate risks affect their financial performance and business model.
Mandatory reporting for asset managers and financial advisers
Asset managers and financial advisers are required to disclose how they integrate ESG factors into investment decisions. This is similar to the EU’s Sustainable Finance Disclosure Regulation (SFDR) and includes:
- Pre-contractual disclosures on ESG integration in financial products.
- Ongoing sustainability performance reporting.
- Transparency on ESG methodologies and data sources.
Standardised ESG data and reporting frameworks
SDR encourages businesses to align with standardised global sustainability frameworks, such as:
- ISSB IFRS S1 & S2 Standards (for sustainability and climate reporting).
- Task Force on Climate-related Financial Disclosures (TCFD).
- UK Green Taxonomy (for sustainable finance classification).
- Global Reporting Initiative (GRI) & Science-Based Targets Initiative (SBTi) (for ESG goal setting).
Supply chain & Scope 3 emissions reporting
Larger companies and financial institutions must report on Scope 3 emissions, including those from their supply chains. This is particularly relevant for businesses with global operations, as it ensures that carbon and sustainability impacts are assessed beyond direct operations.
Conclusion
The introduction of the Sustainability Disclosure Requirements (SDR) signals a significant shift in how UK businesses and financial institutions approach sustainability reporting. As global standards converge, organisations that prioritise clear, consistent, and data-driven ESG disclosures will meet regulatory expectations while attracting investment, mitigating risk, and driving long-term value.
It’s clear businesses must act now to stay ahead of evolving regulations. However, to do this requires expert knowledge, upskilling, and proactive compliance planning. Our sustainability training courses UK help organisations do precisely that by providing the insights and practical tools required to achieve compliance, enhance ESG performance, and future-proof your business.
