SDR and fund labelling for private markets: when “impact” becomes a regulated claim

The FCA’s Sustainability Disclosure Requirements regime, finalised in PS23/16, is really several regimes under one name, and the way to get clear on it is to take them apart.

The anti-greenwashing rule at ESG 4.3.1R requires that any reference a firm makes to the sustainability characteristics of a product or service is consistent with those characteristics and is fair, clear and not misleading. Separately, there are the four investment labels at ESG 4.1.1R, sustainability focus, sustainability improvers, sustainability impact and sustainability mixed goals, which the regime sets in lower case and treats as non-hierarchical. A fund may use one if it meets the qualifying criteria in ESG 4.2.4R, including that at least 70% of the gross value of the product’s assets is invested in line with a clear, specific and measurable sustainability objective. Then there are the naming and marketing rules at ESG 4.3, which restrict sustainability-related terms in the names and marketing of funds that hold no label. Under ESG 4.3.5R a firm using a restricted term without a label may not use “sustainable”, “sustainability” or “impact” at all, and has to state, in those terms, “This product does not have a UK sustainable investment label”. And there are the disclosure layers in ESG 5, consumer-facing, pre-contractual, and ongoing product and entity-level reporting, with the entity-level report due from 2 December 2025 for the largest firms and from 2 December 2026 for firms with at least £5bn in in-scope assets under management.

Now hold that against a typical private equity manager. The labels, the naming and marketing rules, and the consumer-facing disclosures were built around UK authorised funds, mostly the ones available to retail investors. Most private equity funds are unauthorised alternative investment funds sold to professional investors, and they sit outside that part of the regime. The FCA took portfolio management out of the scope of PS23/16 and consulted on it on its own, in CP24/8. Non-UK alternative investment funds are not in scope either, even when a UK firm manages them. A UK manager running unauthorised AIFs for institutions can reasonably read the labels and the naming and marketing rules as not binding its funds today, and plenty of advisers have called the regime a flexible one for private fund managers for that reason.

One component ignores all of that. It doesn’t turn on whether your fund is authorised, retail, labelled or named anything in particular. The anti-greenwashing rule applies to every FCA-authorised firm, and it has done since 31 May 2024. That is the part of SDR that reaches private equity in full, and it’s the part firms have prepared for least, because everything around it didn’t apply and the reassurance carried across.

The rule is at ESG 4.3.1R, and the FCA published finalised guidance, FG24/3, on how it expects the rule to be met. The rule itself is short. Where a firm communicates with a client in the UK about a product or service, or communicates a financial promotion, any reference to the sustainability characteristics of that product or service has to be consistent with those characteristics and fair, clear and not misleading. The guidance breaks that into four things a claim must be, and those four are the working test to run over every sustainability statement a firm makes.

First, a claim must be correct and capable of being substantiated. Claims must be factual, avoid false implications, not overstate impact, and be substantiable when made. The evidence must exist when the claim is published.

Second, a claim must be clear and put in a way the intended audience can understand. The terms have to be ones that audience would follow, must not imply sustainability characteristics the product doesn’t have, and the overall impression, visual presentation included, must not mislead.

Third, a claim must be complete. It can’t leave out or bury information that might change a decision, and it has to give a representative picture rather than a flattering excerpt.

Fourth, comparisons must be fair and meaningful. Where a firm compares the sustainability characteristics of its product with anything else, it has to make clear what is being compared and how, compare like with like, and hold the evidence for the comparison.

The reach is the point most firms miss. The rule covers communications and financial promotions about products and services, which in a private equity setting means the fundraising deck, the private placement memorandum, the firm’s website, the LP quarterly and annual reports, the responses to investor due-diligence questionnaires, and the firm-level commitments a manager publishes about itself, a net zero target among them. Every one of those is a place a sustainability claim gets made, and every one now falls inside a rule that wants the claim true, clear, complete and evidenced.

The rule earns its keep when you put it against the specific claims a private equity firm makes as a matter of habit. The list below sets the common claim types against what has to exist before each one can safely go out.

For any private equity firm that raises capital in the European Union, a second regime lands on the same claims, and in places it’s stricter than the UK one. A UK manager marketing into the EU engages the EU’s Sustainable Finance Disclosure Regulation, which classifies funds by their sustainability characteristics and imposes pre-contractual and periodic disclosure obligations. It also engages ESMA’s guidelines on the use of ESG and sustainability-related terms in fund names, which set quantitative thresholds and exclusion requirements for funds that use such terms.

So a single fund raising on both sides of the Channel can meet the UK anti-greenwashing rule and the EU’s SFDR and naming regime at the same time, and the same impact or sustainability language has to answer to both. A claim that is only unwise under the UK rule may be flatly impermissible under the EU naming thresholds. A firm that drafts its sustainability messaging for one jurisdiction and uses it in both hasn’t saved any work; it has put the same words in front of two regulators, each reading them against its own standard.

Five things keep a private equity firm on the right side of the anti-greenwashing rule, and none of them means adopting a label or giving up sustainability claims. They mean making only the claims the firm can stand behind.

A sustainability claims register. One record of the sustainability claims the firm makes, across the deck, the PPM, the website, LP reporting, DDQ responses and firm-level commitments, each linked to the evidence that backs it. When someone asks whether a claim can be substantiated, the answer comes off that record rather than out of a hunt through old drafts.

A review and sign-off gate for sustainability language. A control that routes any communication carrying a sustainability claim past a reviewer before it goes to an investor or the public. The usual failure isn’t a deliberate exaggeration. It’s a marketing or IR team using sustainability language that compliance never saw, because nothing forced it through a gate.

A substantiation pack behind every metric. For each impact or ESG metric the firm publishes, the data source, the method, the baseline, the boundary and the date, so the metric can be supported at the moment it’s made and stays traceable after.

A consistency check across all materials. The same claim should mean the same thing in the deck, the PPM, the website, the LP report and the DDQ. Where materials disagree, that’s a completeness failure, and it also tells a regulator or an LP that the claims are decoration rather than something the firm controls.

Monitoring for claim drift. Sustainability claims age. A net zero commitment made three years ago, a portfolio metric that has since slipped, an impact claim the strategy has quietly moved away from in practice, each turns false over time if nobody revisits it. The firm needs a periodic review that retests live claims against current reality, because the rule wants the claim to be substantiable whenever it’s being made, which includes every day it stays on the website.

Run this on your own claims first. For each sustainability claim in the deck, on the website and in the LP reports, check you can answer the following from documents that already exist:

• the evidence that substantiated the impact claim at the moment it was made
• the diligence and investment committee records behind the ESG integration claim
• the transition plan and interim steps behind the net zero commitment
• the data source, method, baseline and boundary for portfolio emissions figures
• evidence that the flattering metrics are representative of the whole portfolio, not outliers
• consistency of the claim across the deck, PPM, website and DDQ
• who reviewed and signed off the sustainability language before it went to investors
• whether the claims still live on the website are still true today, every day they stay there

Registers and substantiation packs let firms answer from existing materials. Rebuilding the evidence after a claim is challenged is the harder place to be, because the rule asks whether the claim could be substantiated when it was made, not whether a case can be assembled for it now.

This insight is provided for general informational purposes only and doesn’t constitute legal, investment, or regulatory advice.