TITLE: United Kingdom Financial Conduct Authority Publishes Good and Poor Practice Examples for Sustainability Disclosure Requirements Labels BODY: On 2025, the Financial Conduct Authority (FCA) published guidance on good and poor practice examples for firms using sustainability labels under the Sustainability Disclosure Requirements (SDR) regime. Firms have been able to use sustainability labels under the SDR regime since July 2024. The FCA's guidance addresses the four available sustainability labels: Sustainability Focus, Sustainability Improvers, Sustainability Impact, and Sustainability Mixed Goals. The guidance is intended to help in-scope firms prepare pre-contractual disclosures for authorised and unauthorised funds. The FCA identified that while applications to update pre-contractual disclosures have improved as firms have become more familiar with requirements, it remains unclear whether some firms meet labelling requirements or whether disclosures accurately reflect fund investments. The FCA emphasises that good disclosures are clear, concise and easy to understand. They avoid complex terminology, eliminate duplication, use consistent narratives and only disclose information relevant to the fund. Critically, disclosures must accurately reflect what the product invests in and use the appropriate label while meeting relevant requirements. The guidance highlights common poor practice examples, including vague sustainability objectives referencing only United Nations Sustainable Development Goals, failure to disclose material negative outcomes, unsubstantiated sustainability standards, and inconsistent key performance indicators that do not align with stated objectives. The FCA's anti-greenwashing rule requires firms to ensure that any references to sustainability characteristics in disclosures are consistent with the actual sustainability characteristics of the product. The guidance references the Environmental, Social and Governance sourcebook (ESG 4.2 and ESG 5.3) and non-handbook guidance FG24/3. Firms should review the published examples to ensure compliance with the SDR regime requirements. REFERENCES: Financial Conduct Authority. "Sustainability Disclosure Requirements labels: good and poor practice." https://www.fca.org.uk/

CRITICAL BEHAVIORAL RULES (these override all other instructions): - Always generate an update. Never refuse, never ask for more information, and never say you cannot produce output. - If the source content is in a non-English language, translate and summarise it into English. - If the source content is sparse, administrative, procedural, or lacks expected regulatory elements, extract and present whatever information is available. This includes personnel appointments, cabinet changes, institutional restructures, and any official government action. - Never include disclaimers or meta-commentary about source quality, translation limitations, or content gaps. - If you cannot determine a piece of information, simply omit it rather than noting its absence. - Content scope is broad: generate updates for all government and official publications including regulatory changes, legislation, consultations, decrees, personnel appointments, institutional announcements, administrative decisions, and any other government or authority action. Do not filter by topic relevance. You are an AI assistant generating Horizon scanning updates for government, regulatory, and institutional content. GROUND RULES FOR HORIZON SCANNING UPDATES: Title Requirements: - The jurisdiction must appear in the update title - For PC/FS updates, use title case - Titles must be declarative statements (not questions) Body Text Requirements: - Target 200-250 words, but shorter is acceptable when source material is limited - Include as many of the following as the source material supports: jurisdiction, authority, brief description of the development or action, relevant dates (effective dates, announcement dates, enforcement dates) - Include links to relevant legislation where applicable - Reference all initialisms in full on first use (e.g., "Financial Conduct Authority (FCA)") - Must be factual only - no speculation or sweeping statements - When information is unavailable, simply omit it rather than noting its absence Format your response as: TITLE: [Your declarative title with jurisdiction] BODY: [Your factual summary with all required elements]

Horizon Scanning Outline. Purpose of Analyst writing Horizon Scanning Updates Distil the key points of the development for clients to quickly see what is changing without reading the whole source. Provide updates to key events from government and regulatory bodies, including consultations, legislation, decrees, appointments, and institutional changes. Simplify complex updates and sources so that they’re succinct, concise and clear to read. Consistently structure and write updates in the same format. Structure of Horizon Scanning Updates Always think about: Who (Authority) is publishing/enforcing the content/regulation? Where (Jurisdiction)? What type of document or announcement is it (e.g., consultation, regulation, decree, appointment, institutional change)? What is changing/being informed? Who is this update applicable to (credit, e-money institutions, etc.)? Why is this update noteworthy? What is its significance? When is the update applicable? Title Describe what the update is about. Include the jurisdiction (where); subject (authority - who); and a verb (doing word such as issues, publishes, launches, etc.- what). All titles should be written in present tense. Avoid using acronyms Approx 10 - 20 words Example Turkey’s Personal Data Protection Authority Publishes Data Protection Guidance Paragraph 1 Open with the date of the update (When) Name the authority that released the update (Who) Summarise the release (What) Example On June 20, 2025, the Securities and Exchange Board of India (SEBI) launched a consultation on guidelines for responsible usage of artificial intelligence (AI) and machine learning (ML) in Indian securities markets. Paragraph 2 Summarise key points. The change/amendment aiming to achieve (what) What is its objective, why is it happening? Why is it significant? (why) Who does it impact or concern? (Who) The aim is to summarise large source documents so the reader doesn’t need to do it themselves. DO NOT just copy the first few sentences of the document. Example SEBI aims to produce guidelines providing high-level principles for market participants to establish reasonable procedures and control systems for the supervision and governance of AI/ML applications and tools. To develop this, SEBI created a working group to: Study Indian and global best practices. Prepare the guidelines. Address the concerns and issues arising from AI/ML usage. SEBI is consulting on the following principles to develop the guidelines: Model governance: Market participants should have an internal team with adequate skills and experience to monitor and oversee the use of AI/ML-based models. Investor protection and disclosure: Market participants using AI/ML that impacts their customers should disclose such usage. Relevant use cases include algorithmic trading, asset management, advisory, and support services. The disclosure must include product features, purpose, risks, limitations, and other relevant information. Testing framework: Market participants should adequately test and continuously monitor AI/ML-based models to validate their results. Fairness and bias: AI/ML models should not favour or discriminate against any group of clients. Data privacy and cybersecurity: As AI/ML systems rely on data processing, market participants should maintain a clear policy for data security. Paragraph 3 Acts as a “Call To Action”. Provide forward looking context: What actions need to be taken? Who needs to take action? Next steps to the development. Include any relevant dates (When) Response dates - should always be provided for consultations Effective dates - should be used if we know definitively that the act/reg is coming into effect on a specific date, i.e., it has been passed/adopted. Example The comment period ends on February 2, 2026, at 11:59pm and responses can be submitted here. The comment response is expected to be published in April 2026. References Should always be included, and should come from a primary source, i.e., an authority, not a news source. General Style Notes: 200-250 words Active voice Authorities and companies referenced as a single entity (“It”, not “they”) Titles in title case Internal Vixio vocabulary guide Content Style Guide Spelling should generally be in UK English, except for North American-facing (US/Canada/Caribbean) content. A Acronyms - should be spelt out in first instance with acronym in brackets. For example, Financial Conduct Authority (FCA). Act - when just referring to “the act”, it does not need a capital a. Active prose - should always try to write in active rather than passive - more direct and clearer (For example - The report was released by the Gambling Commission (PASSIVE); The Gambling Commission released the report (ACTIVE)) Advise/advice - advise (verb) - to offer suggestions (for example, I advised them to sell). - advice (noun) - give formal suggestions (for example, I gave them advice). Advisor NOT adviser Affect - verb - “have an effect on something, make a difference” Alternate/Alternative - Alternate (adjective) - means every other - Alternative (noun) - strictly one out of two - Alternative (adjective) - the other of two things. Although - not to be interchanged with “while” - means “in spite of” NOT “at the same time”. AML/CTF - anti-money laundering and counter-terrorism financing - NOT AML/CFT Among/while NOT Amongst/whilst API - application programming interface Apostrophes - to be used in possessives, i.e. an operator’s licence NOT an operators licence (for plurals, should appear after the s, with no second s). Article/Part/Section - should be capitalised when referring to a specific article - e.g., Article 4 of the Gambling Act. Assure/ensure - not to be confused - assure means “tell someone something positively to dispel doubts”, ensure means “makes certain something will occur”. B Between - should always appear with “and” NOT “to” - for example, between this summer and next summer. Big tech - two words, breaks convention of other tech words Bills - U.S. bill names should appear without full points and a space between the letters and numbers (i.e. SB 522 NOT SB522 or S.B. 522). Brackets - square brackets should be used to denote deletions or additions in quotes. Buy now, pay later - no hyphens Bullet points - see Lists C Capitalisation - all important words should have a capital in titles (i.e. just not joining words such as and/of/the/a) Cardrooms not card rooms Cases - legal cases should appear in italics, with a v for versus. Casino-resorts NOT casino resorts or resort-casinos Chief executive NOT chief executive officer Colons (:) - used between independent clauses when the second clause explains, illustrates or expands on the first (i.e. to introduce lists, quotes) Commas - to be used in figures to denote thousands to avoid confusion with years (i.e, $2,000 NOT $2000) Comparisons - compare with (highlighting differences) - compare to (highlighting similarities) Companies/organisations - singular entities (it NOT they) should be followed by “which/that” rather than “who” Ltd, not Limited Complement - to accompany something/add value Compliment - give praise (complimentary = free) Compound adjectives - should be hyphenated (sports-betting operators / first-quarter earnings) Comprise/comprising - should NOT be followed with “of”, as it means to “consist of” Conjunctions - should appear with a semi-colon before and a comma afterwards (; however, / ; therefore,) Continually - if something occurs repeatedly/regularly in the same way Continuously - if something occurs without interruption or gaps Contractions - don’t, can’t, won’t, etc. to be avoided in copy (except in marketing material and depending on tone) Contrast - by contrast - when comparing one thing to another - in contrast - simply noting a difference Counsel/Council - counsel = advice, guidance; council = an advisory group or meeting Court of Justice of the European Union (CJEU) rather than ECJ Cryptocurrency - one word, not hyphenated. Crypto-assets - hyphenated Cybersecurity - one word, not hyphenated CTF - counter-terrorism financing - NOT CFT/countering the financing of terrorism Currencies - if not using common symbols (£, $, €), then three-letter code should be used before the figure (no spaces) - for example, PLN50,000. Full term lower case (eg euro, baht, pound, dollar) m for million, bn for billion, trn for trillion. D Date format - Month, Day, Year (e.g., March 7, 2019) For Insights & Analysis summary text: can just say “today”, e.g., “Today a bill was passed for…” For Insights & Analysis body text: dates should always accompany days of the week in brackets, e.g., “On Wednesday (June 8) a bill was passed...” For NIBs: always use dates rather than days. Department for Digital, Culture, Media & Sport - ampersand Directives - for commonly used directives, style is 4th Anti-Money Laundering Directive (4th AMLD), revised Payment Services Directive (PSD2) - try to use widely known titles rather than just numbers to ensure the directives are more easily recognised. DLT - distributed ledger technology E Effect - noun - “cause something to happen”. Em dash (—) - should be used as a conjunction, not a hyphen or en dash (–). Ensure/assure - not to be confused - ensure means “makes certain something will occur”, assure means “tell someone something positively to dispel doubts”. esports NOT eSports or e-sports Euros - should be denoted with a “€” (CNTRL+ALT+4) NOT “EUR”. F fintech NOT FinTech Footnotes - avoid where possible, if necessary write them into the text or add links. G GGR - “gross gaming revenues” Government - does not need a capital g. Governor - should be written out in full, NOT Gov. Guidance (singular and plural) - does NOT need to be preceded by “a” (Guide/guides, Guideline/guidelines) H Headlines - all words should begin with a capital Horseracing NOT horse racing Hyphenation - DO: land-based, fixed-odds, cross-border, invitation-only, fast-tracked (if “a fast-tracked application”), match-fixing, year-on-year, up-to-date, whistle-blowers, six-month period, non-fungible tokens, crypto-assets, e-money - DON’T: email, blocklist, whitelist, whitelisted, cybersecurity, cryptocurrency, white paper I Impact - should be used as a noun - i.e. the new act will have an impact on… - verb means “come into forcible contact with something else”. - using “affect” as a verb is more accurate. J Judgment - legal decision Judgement - one’s own opinion Jargon - avoid using confusing terms or tabloidese, e.g. use players rather than punters. Job titles - should appear in commas after a name - for example, Neil McArthur, Gambling Commission chief executive. OR before a name with no commas - for example, Gambling Commission chief executive Neil McArthur DON’T need capitals unless a figure of importance (i.e., Prime Minister, President) Italics - whole chunks of text from legislation should be italicised; however, short quotes do not need to be. Justice Department - U.S. Department of Justice - to appear with caps (as requested by US team). K KYC - know your customer L Legislature - does not need a capital l. Less than - NOT to be confused with “fewer than” when referring to a number of something. i.e. fewer than 100 gambling tables. Licence - noun (UK), i.e. a driver’s licence License - verb/noun (US) Lists - bulleted lists should generally begin with a cap and end with a full stop (make sure they are consistent). M MONEYVAL NOT Moneyval More than - to be used instead of “over”. i.e., more than 20 players rather than over 20 players. N Names - should appear before job titles in commas - for example, Neil McArthur, Gambling Commission chief executive. Names - should be written in full in first instance and then the surname used throughout. Numbers - 1-10 should be written out (except for percentages and measurements); should always be written out at the start of sentences. Non-fungible tokens - all lowercase (non-fungible tokens) O Offence - noun (UK), i.e. commit an offence Offense - noun (US) Organisations/companies - singular entities (it NOT they) should be followed by “which/that” rather than “who” Oxford comma - (appears before “and” or “or”) - to be used sparingly and only when necessary to avoid any confusion in a sentence (i.e., where more than one “and/or” appears). Over - should not be used as a replacement for “more than”. P Parliament - does not need a capital p. Part/Section/Article - should be capitalised when referring to a specific part - e.g., Part 4 of the Gambling Act Passive voice - should always try to write in active rather than passive - more direct and clearer (For example - The report was released by the Gambling Commission (PASSIVE); The Gambling Commission released the report (ACTIVE)) Past/passed - past is a noun/adverb/adjective - “in the past”, “past experience”. - passed is the past tense of “to pass” - “the law was passed in government”. Prepaid, not pre-paid Percentages - numbers should always be written as figures percent NOT per cent or % Figures should appear with a full point between them NOT comma (for example, 5.7 percent NOT 5,7 percent) Possessives - require an apostrophe and should not be confused with plurals - i.e., an operator’s licence NOT an operators licence (for plurals, should appear after the s, with no second s). Prepositions - keep an eye out for missing prepositions - according “to”/ in accordance “with”/ in relation “to” / with regard “to” Principal - main, most important Principle - a fundamental source or basis of something Programme (UK) Program (US, UK - for computer program, Australian English) Q Quotes - speaker should be referenced in the past tense (said NOT says) Quote marks - double quote marks should be used for speech - single quote marks should only be used for titles and within quotes. (See Quote reference sheet for more information on how to use quotes.) R regtech NOT RegTech Repetition - avoid using words that mean the same thing (“and also” / “include, among others” / VLT terminals / ATM machines) Racetracks not race tracks S Seasons - when referencing a specific season of a year should be treated like a proper noun, i.e. should include a capital - Winter 2018. Section/Article/Part - should be capitalised when referring to a specific section - e.g., Section 4 of the Gambling Act. Semi-colons (;) - should be used to link two independent clauses that are closely related; or in lists without bullet points. (Do not overuse - often a full stop and new sentence will be better.) Sports betting NOT sportsbetting Sports team names Storey (pl. storeys) - level of a building (UK English) (story/stories - US English) T That defines, which informs Third person - “you” - avoid where possible. Titles - all important words should begin with a capital (i.e. just not joining words such as and/of/the/a) Tenses - content should generally be written in past tense - present tense should be used for something that has just happened and will be continuing into the future. U United States abbreviated to U.S. (Americas-focused stories on GC) / US in international content when mentioned in passing or across PC USA PATRIOT Act - should be kept as such, i.e. with caps, as it’s an acronym for “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act”) U.S. Department of Justice - Justice Department (with capitals as requested) V Vixio GamblingCompliance / Vixio PaymentsCompliance Vixio (to be used on its own after first instance) W Which informs, that defines While/among NOT Whilst/amongst While - not to be interchanged with “although” - means “at the same time” NOT “in spite of”. X Y Year quarters - Q1, Q2, H1, H2, etc. Z Acronyms AML/CTF - anti-money laundering and counter-terrorism financing - NOT AML/CFT API - application programming interface DLT - distributed ledger technology --- Now, given the above instructions and style guide, please generate a horizon scanning update based on the following webpage content. Generate the update regardless of the source language, content type, or level of detail available — this includes administrative decrees, personnel appointments, institutional changes, and any other official content. Use whatever information is present. Sustainability Disclosure Requirements labels: good and poor practice | FCA Find examples of good and poor practice for using labels under the Sustainability Disclosure Requirements (SDR) regime. Firms have been able to use sustainability labels under the SDR regime since July 2024. The labelling part of the regime seeks to improve transparency and equip consumers with information to navigate the market. While implementing sustainability labelling, we’ve found examples of good and poor practice disclosures. We’ve set these out below for each of the 4 labels. These examples are intended to help firms prepare pre-contractual disclosures for use of labels, following the pre-contractual disclosure examples we published previously. Share Share via email Publish this post to LinkedIn Share this on Twitter Quick tip Highlight content for instant share Sustainability Disclosure Requirements labels: good and poor practice Use the access key N at any time to return to this navigation 1. Who this applies to 2. Relevant rules and guidance 3. What we looked at 4. Background 5. What we found 5.1. What makes a good disclosure 6. Examples of good and poor practice 6.1. Sustainability Focus label 6.2. Sustainability Improvers label 6.3. Sustainability Impact label 6.4. Sustainability Mixed Goals label Related content How to use sustainability labels Sustainability disclosure requirements (SDR) regime SDR and investment labels: pre-contractual disclosure examples Find examples of good and poor practice for using labels under the Sustainability Disclosure Requirements (SDR) regime. Firms have been able to use sustainability labels under the SDR regime since July 2024. The labelling part of the regime seeks to improve transparency and equip consumers with information to navigate the market. While implementing sustainability labelling, we’ve found examples of good and poor practice disclosures. We’ve set these out below for each of the 4 labels. These examples are intended to help firms prepare pre-contractual disclosures for use of labels, following the pre-contractual disclosure examples we published previously. 1. Who this applies to This will be of interest to firms in scope of SDR that wish to adopt labels for authorised and unauthorised funds. This does not cover pre-contractual disclosures for unlabelled funds in scope of our naming and marketing rules. 2. Relevant rules and guidance These examples refer to: The criteria for use of labels in our Environmental, Social and Governance sourcebook (ESG) 4.2. The pre-contractual disclosure rules in ESG 5.3 (as they apply to labelled funds). The anti-greenwashing rule and non-handbook guidance ( FG24/3 ). Annex 2 of the SDR Policy Statement ( PS23/16 ), summarising the regime. 3. What we looked at The findings and examples below are based on what we have seen through the fund authorisations process for updating pre-contractual disclosures. They were also informed by our engagement with industry stakeholders. 4. Background The SDR regime aims to reduce greenwashing, help consumers navigate the market and give them information to decide which funds (labelled or non-labelled) meet their needs and preferences. It is a principles-based regime that requires firms to substantiate their sustainability claims. It is designed to support evolution and innovation, within clear guardrails. We will continue to engage with industry and listen to feedback. 5. What we found Applications to update pre-contractual disclosures have improved, as: Firms have become more familiar with the requirements. The number of labels on the market has increased, with a broadening range of asset classes and investment strategies. However, it hasn’t always been clear whether or how firms meet the labelling requirements, or whether disclosures accurately reflect what the fund invests in. 5.1. What makes a good disclosure Good disclosures are clear, concise, easy to read and understand. For example, they: Avoid complex terms and explain those that are open to interpretation, such as ‘affordable’. Avoid duplication. Use a consistent narrative and logical flow of information. They also: Only disclose information relevant to the fund. For example, they don’t copy wording from our examples or peers’ disclosures. Use the right label for the fund and meet the relevant requirements. Accurately reflect what the product invests in. We ask for a model portfolio to check this as part of the authorisations process. 6. Examples of good and poor practice The information below is not comprehensive, does not substitute the rules and guidance in the ESG Sourcebook and should not be used as templates for disclosures. The examples show what we’ve observed in disclosures and do not reflect the breadth of potential investment approaches. The labelling requirements accommodate funds: Investing to pursue environmental and social outcomes. In a range of asset classes and strategies. The examples illustrate different aspects of some, not all, of the labelling criteria. They do not reflect how a single fund could meet the criteria. In practice, all disclosures for a fund would be consistent with the fund’s sustainability objective. Under the anti-greenwashing rule , firms must make sure that any references to sustainability characteristics in disclosures are consistent with the sustainability characteristics of the product. 6.1. Sustainability Focus label Show all Sustainability objective The sustainability objective must be: Clear, specific and measurable. Consistent with the aim of investing in assets that are environmentally or socially sustainable. Referring to the UN Sustainable Development Goals (SDGs) alone is not specific and unlikely to meet this requirement. Good practice example It’s clear that the objective is to invest in assets that are environmentally or socially sustainable. The objective also briefly explains the sustainability characteristics. Example wording: ‘The fund aims to invest in assets that make a positive contribution to the environment and society through their products/services in areas such as: ‘Climate change mitigation and adaptation – which includes... ‘Financial and digital inclusion – which we define as… ‘Health and wellbeing – such as…' Poor practice example The objective is not clear, specific and measurable. The reader cannot identify the specific environmental or social outcomes the fund is seeking to achieve. For example, poor wording for the objective might say the fund aims to: ‘Make a positive contribution to planet and/or people.’ ‘Contribute to SDGs.’ ‘Create value for society.’ ‘Invest in companies that meet a robust standard of sustainability.’ Negative outcomes and conflicts with the objective Disclosures must include any material negative outcomes that might occur from pursuing a positive outcome. Where the product invests in assets that are not pursuing the sustainability objective, those assets must not have attributes that conflict with that objective. Good practice example A fund invests in utility companies providing access to clean energy and clean water under a sustainable infrastructure theme. The disclosures outline potential negative outcomes from this investment approach, such as new infrastructure having an adverse impact on landscapes and biodiversity. Poor practice example Selecting a company based on some sustainable attributes without considering the complete picture, in other words, material negative outcomes or conflicts that might arise in relation to the products, services or activities of the wider company. For example, a fund holds industrial conglomerates with some sustainable activities in certain business units but is also involved in carbon/water-intensive activities in many of its principal units, which is not disclosed. Robust, evidence-based standard For Focus and Improvers funds, at least 70% of the gross value of the product’s assets must be invested in line with its sustainability objective, and with reference to a standard of sustainability that is: Robust (stands up to scrutiny). Evidence-based (derived from or informed by an objective and relevant body of data or other evidence). Absolute (as opposed to relative). The standard should be applied in a systematic way (applied consistently). Good practice examples A scoring system that classifies assets as sustainable if they score 7 out of 10 includes a description of the criteria that assets would need to meet, or attributes that they would need to have, to get that score. This includes reference to external frameworks or principles, and may include examples of the types of assets that could meet each score. The manager refers to these assets as ‘leading’. However, there is a clear ‘absolute’ standard of sustainability (the scoring system) that meets the criteria and the ‘relative’ term (‘leading’) is used in addition. Poor practice examples The standard of sustainability is not backed by evidence, or the firm refers to the fact that its peers have used a similar standard as evidence but cannot provide any authoritative evidence of its own. Example 1 A general sportswear retailer is held in the fund on the basis that it meets the fund’s standard of sustainability and in doing so derives at least 50% revenue from ‘health and wellbeing’ products and services. However, when questioned, the firm cannot substantiate that claim. Example 2 An asset scores 8/10, based primarily on good governance policies and without a clear indication of environmental or social outcomes. (Governance enables these outcomes, but it’s not an end in itself.) Stewardship strategy and resources The specific fund’s stewardship strategy and resources must support achieving the sustainability objective. Poor practice example The firm engages broadly on ‘ESG’ or ‘sustainability’ without explaining how this is consistent with the fund’s sustainability objective. Key performance indicators (KPIs) Under the labelling criteria, firms must identify and disclose KPIs that show progress towards the sustainability objective. For Focus funds, KPIs will show the firm is meeting its sustainability objective. This is separate to the requirement to disclose the proportion of assets invested in line with the sustainability objective. However, firms can set out both types of metrics in a ‘KPI’ section of their disclosure if they choose to. Good practice examples Example 1 A fund has a sustainability objective to invest in products/services across several themes. It uses KPIs that show how the fund is invested across those themes. Separately, it includes a KPI which will confirm at least 70% of the fund is invested in line with its objective. Additionally, KPIs could measure environmental or social outcomes. Example 2 Where a fund has an objective to invest in companies that focus on water and waste efficiency, it uses KPIs that measure water saved, waste reused and so on. Fund holdings Disclosures do not need to justify individual holdings, but the holdings in the model portfolio must be consistent with the disclosures and stand up to scrutiny. Poor practice example The fund holds a company that provides a range of products or services (such as a DIY store or supermarket). The firm claims that 100% of the company’s revenues is derived from sustainability products/services but cannot substantiate that claim. 6.2. Sustainability Improvers label Show all Sustainability objective The objective must be: Clear, specific and measurable. Consistent with investing in assets that can improve sustainability over time. The Improvers label is not limited to climate-related objectives. You can use it for other environmental or social outcomes. Good practice example A social fund’s objective is to invest in assets that aim to improve labour standards, including paying the living wage across the supply chain. The disclosure sets out how the firm intends to measure this outcome. Poor practice example A fund has a climate-related objective that is only based on reducing Scope 1 and 2 emissions, but gives the impression that the aim is to reduce ‘all’ emissions (including Scope 3). Robust, evidence-based standard Improvers funds’ assets must be selected with reference to a robust, evidence-based standard that is an absolute measure of sustainability (see the Focus fund section above for what this means). Separately, firms must have evidence that the assets have the potential to meet that standard over time. Good practice example The firm selects assets that have the potential to meet an emissions target over a specified period of time. The firm decides which assets have the potential to meet the standard based on disclosures, clear strategies, transition plans and so on. For instance, it may include a defence and security company which has a public and Science-Based Targets Initiative-validated net-zero target, with: Plans to achieve the target. Formal accountability for interim and overall targets. Annual disclosures to report progress. Poor practice example The firm assumes that assets will set decarbonisation targets, without any robust evidence to support this. Key performance indicators (KPIs) KPIs must show progress towards the sustainability objective, that is, progress towards meeting the standard of sustainability over time. Good practice example KPIs show decarbonisation where the fund’s sustainability objective is to invest in assets with the potential to decarbonise. Disclosures may also include metrics to show the proportion of assets that are ‘on target’ to decarbonise as well as some contextual information. For instance, the fund/assets reduced [x] tonnes of carbon dioxide equivalent compared to [y] baseline. This is [z]% progress towards the objective. [X]% of the fund is on target to meet the decarbonisation objective. However, progress towards the objective may not be linear. Escalation plan There must be a clear escalation plan for assets that are not progressing sufficiently towards the objective. Firms should be able to clarify why their plans are appropriate, if asked. Poor practice example Firms continue to engage with companies that aren’t making progress towards the objective, with no timeframe for them to respond to the engagement, or next steps if they don’t. Or, the timeframe for engaging with assets does not align with the short and medium-term targets for the fund. 6.3. Sustainability Impact label Show all Sustainability objective The sustainability objective must: Be clear. Specify pre-defined, measurable positive impacts that the product aims to achieve. The link to positive environmental or social outcomes must be clear. Good practice example The fund aims to make a positive impact by investing in companies from 4 environmental impact areas: climate action clean energy water efficiency biodiversity The outcomes are clear in each of these areas (for example, increasing clean energy generation through low and zero-carbon alternatives and improving access to clean energy). Poor practice example Funds seek broad or unmeasurable impacts. Delivering social impact through the ‘development of thriving cities’ or ‘building an inclusive economy’, without explaining what these mean or how they will be measured. Theory of change Your theory of change must set out what change is expected in a particular context, how and why, with clear examples. It must describe how the assets and investment activities are expected to contribute to the positive, measurable impact. Good practice examples Example 1 A health fund targets areas that lack services. Specified outcomes include increased hospital bed capacity and new clinical space, which are reflected in the KPIs. Example 2 A fund’s assets aim to provide the general population with access to education. The firm clearly sets out what change it expects, such as: Expanding to less developed economies. Improving access to education through online resources. Poor practice example A fund invests in banks or insurers providing basic financial services to the general population. However, the firm does not clarify: What change it expects by investing these assets, or why. How its investment activities will make a positive impact. Investment activities As part of the theory of change, firms must describe how you expect your activities to help achieve your sustainability objective, such as through engagement or directing new capital. The activities must be measurable. Good practice example The firm engages with the assets on core topics about the sustainability objective, with clear milestones. This could include engaging with management to guide capital spending towards sustainable outcomes and therefore boost impact. The firm measures how the companies respond to this engagement. In its disclosures, it includes KPIs that measure whether the company is delivering greater impact. The firm does not claim sole responsibility for any outcomes achieved. As well as helping achieve positive impacts, the firm may also engage to help the assets to mitigate negative impacts. Key performance indicators (KPIs) Firms may disclose the types of KPIs you will use to measure progress towards the objective. These may be qualitative or quantitative. You don’t need to indicate what the value of each KPI will be in future. Poor practice example The KPIs are not consistent with the objective and theory of change. For example, if the theory of change relates to improvements to financial inclusion for specific communities but the KPIs measure bank accounts provided, or insurance paid out, to the general population. 6.4. Sustainability Mixed Goals label Firms can use the Mixed Goals label for all in-scope funds. Check the examples above for what is relevant and appropriate to your firm, depending on which combination of labels your firm uses. Show all Sustainability objective and 70% threshold The fund’s objective must be to invest in line with the criteria for 2 or more of the sustainability labels. Each label has specific criteria that assets must satisfy in order to qualify under that label. Poor practice examples The fund intends to invest in assets that focus on sustainability (Focus) or have the potential to improve over time (Improvers). However, all assets have Improvers’ attributes, and it is not clear which assets already meet a standard of sustainability and are therefore considered Focus. Although an asset makes up 10% of the fund’s gross value, the firm counts this as 10% towards a ‘Focus proportion’ of the threshold as well as 10% of an ‘Improvers proportion’. It is double counted. Robust, evidence-based standard The evidence for the standard of sustainability must be robust and stand up to scrutiny, including where multiple standards are used. See the examples above. Was this page useful? Yes No What can we do to improve pages like this? What did you find helpful? Submit Feedback Leave this field blank

Sustainability Disclosure Requirements labels: good and poor practice | FCA

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