Video transcript: What is UK SDR, how developed it is and what steps firms can take to prepare for it

Transcript

What is UK SDR?

SDR is the UK’s economy-wide Sustainability Disclosure Requirements regime covering corporates, asset managers and asset owners, with the aim of driving better sustainability-related information through the value chain.

This will be the UK’s flagship sustainability reporting framework, which will shape how companies tell their ESG story to their stakeholders.

There will be two components to the SDR:

The first is a set of Corporate disclosure requirements for UK registered companies and listed companies covering how they manage sustainability-related risks and opportunities across their business. These will draw on the ISSB standards and the UK Transition Plan Taskforce output.

Then there will be a set of requirements for asset managers and asset owners to disclose how they consider sustainability when managing investments on behalf of their clients. This will apply at both the entity and product level, and will also include an associated investment products label system.

The SDR will build on the existing mandatory TCFD framework in the UK, broadening domestic reporting requirements beyond climate to other sustainability factors.

How developed is the SDR regime?

Under current plans, the requirements relating to asset managers, as proposed by the FCA in October 2022, will be finalised in Q4 2023. This will then trigger an implementation period for firms to align with the requirements.

However, the corporate reporting requirements will not be introduced until the Government has assessed the ISSB standards, which may take until June 2024. And it’s after this point that formal regulatory proposals would be put forward.

What steps can firms take to prepare?

If you’re an asset manager, you should be looking at the FCA’s rules on SDRs to determine the impact on your current approaches to entity and product level disclosure. Asset managers will also need to map their products to the FCA’s labels to determine whether or not those could be applied.

Companies which will be in scope of the corporate component of SDR should look to get on the front foot by applying what we already know about the underlying standards.

Ultimately we expect the UK regulatory framework will reflect many aspects of the ISSB standards. So if companies have robust risk management, data and reporting processes that incorporate sustainability-related issues, they will be in a strong position when they begin their implementation of the eventual SDR rules.