What does SDR stand for?
SDR stands for the Sustainability Disclosure Requirements.
Is SDR disclosure mandatory?
The SDRs are intended to be mandatory and are thus in line with the Task Force on Climate-Related Financial Disclosures' recommendations. However, we expect more information regarding the implementation after the consultation in Q2 of 2022.
What disclosures will be required under SDR?
The Sustainability Disclosure Requirements (SDRs) are requirements for real economy companies, including listed issuers, asset managers and asset owners, to report on their sustainability risks, opportunities and impacts. There are going to be three different types of disclosures: by companies, by asset manager and owner, and by investment product. The latter includes requirements of investment products about their sustainability impact and relevant financial risks, and is going to form the basis for the Green Labeling system.
What is the green labeling system and how does it relate to the SDR?
The green labeling system is expected to help consumers to select their investment products based on sustainability characteristics. The investment product disclosure, as a part of the SDRs, is intended to support and complement this labeling system. SDRs as well as the green labeling system are part of the government’s proposals (A Roadmap to Sustainable Investing Roadmap) for greening finance, which was published in 2021.
How will SDR work alongside the TCFD-based climate reporting rules?
The Sustainability Disclosure Requirements follow the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), on which the UK has previously based its climate reporting. Now, they will go a step further, both by requiring dual materiality and by considering other environmental impacts and risks in addition to those arising from climate change.
What is the goal/purpose of the SDR?
The UK’s Sustainability Disclosure Requirements are intended to create an integrated framework of decision-useful disclosures on sustainability for corporates and financial institutions. This creates a uniform standard for important information on how corporate and financial flows affect sustainability factors, e.g. how an investment firm is managing sustainability risks.
What is the difference between SFDR and SDR?
The two regulations differ in their areas of application: While the SDRs are being used in the United Kingdom, the SFDR applies within the European Union. Like the SDR in the UK, the SFDR aims to increase transparency in the EU about how financial market participants integrate sustainability risks and opportunities into their investment decisions and recommendations. Differences can be identified both at a corporate level and at a product level. While the SFDRs are anchored in the Corporate Sustainability Reporting Directive (CSRD), the SRDs are guided by the recommendations of the TCFD. On a product level, the SFDRs contain three different categories and requirements for funds (Article 6, Article 8 and Article 9 funds), while the UK introduces a new system for labeling sustainable financial products consisting of five categories. Those range along the sustainability spectrum from products that cannot be marketed sustainably to "impact" products. Since the UK's SDR framework is still in development, it remains to be seen how different the two disclosure regimes will be in the end.