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Home Retirement

Financial advisers and the SDR labels reality

March 20, 2025
in Retirement
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Financial advisers and the SDR labels reality


The recent survey conducted by The Investment Association (IA) and The Wisdom Council presents a compelling insight into the state of sustainable investing.

While over half (52%) of retail investors are aware of the Financial Conduct Authority’s Sustainability Disclosure Requirements (SDR) investment labels, and 94% find the labelling system helpful, there remains a significant disconnect between adviser expectations and the reality of available investment products.

As Twain, Disraeli, or A.N. Other once said, there are lies, damned lies and statistics.  Or perhaps the ‘glass half full/half empty’ idiom is a better way of looking at these numbers.  For example, 52% of those with a sustainable investment have heard of the sustainable labels, but this means 48% of those already investing sustainably have not.

Financial advisers play a crucial role in guiding investors through sustainable investment options. The survey found that 86% of advisers are aware of the SDR labels, and 77% feel confident in selecting funds that align with their clients’ sustainability preferences.

Once again, we need to look at what these figures might mean in practice.  Does the fact that 86% of advisers are aware of the labels mean that 86% of advisers are discussing the labels with all their clients? Or do they only discuss the labels with clients who express an interest in investing sustainably? The 86% figure takes on completely different significance when looked at in these different ways.

Also, if even we do assume 86% of advisers are discussing labels with all clients, what about the 14% who are not aware of the labels?

The Consumer Duty requires advisers to show how they have delivered good client outcomes, but this will be difficult if the file does not show any information about how the sustainability labels have been discussed.

For every sustainability label, there are two funds with sustainability characteristics that have no label

The file needs to show all clients are aware of the labels, even if a large number then decide that investing sustainably isn‘t for them – that’s informed choice.

So far, we’ve looked at sustainability labels, but at the time of writing, for every sustainability label, there are two funds with sustainability characteristics that have no label.

This doesn’t make these funds somehow ‘less’ than labelled options, and many non-labelled options will be able to deliver sustainable investment strategies that fully meet investor expectations.

An adviser’s due diligence needs to demonstrate that the ultimate investment solution recommended to a sustainable investor has look at labelled, non-labelled as well as overseas sustainable solutions.

Despite the increased awareness and interest in sustainable investing, financial returns appear to remain the primary driver of investment decisions. The IA survey found that while 92% of advisers report an increased appetite for sustainable investments among their clients, 55% of investors still prioritise returns over sustainability considerations. What do these figures tell us?

Well, how is the performance issue being discussed? Many investors who like the idea of investing sustainably may well prioritise performance over sustainability (if that is actually a real long-term choice), but some other investors may wish to look more deeply at both financial and non-financial returns, especially where their values are concerned.

There’s a danger with attributing performance with a particular investment type or fund type

So, the questions become how are advisers identifying client interest in non-financial returns? And, does the current advice process allow sufficient identification of preferences, objectives and values?

There’s also a danger with attributing performance with a particular investment type or fund type. What happens when these funds, cyclically, go to the top again?  What about the risks associated with not investing sustainably?

Are clients warned that investing in funds that make no allowance for ESG or sustainability factors pose a significant long-term risk?  What if oil and gas go through an underperformance phase? Will adviser files make a note that clients do not want to invest in oil and gas ever again? Long term investors need long term investment strategies, not short-term recycling of Q1 funds.

The conversation with clients needs to be about different performance characteristics, which can be better or worse at different times, rather than any causal link between for example, ESG and low returns.

Once again, we are back to lies, damned lies and statistics – any investment strategy can be shown to be the best or worst when one has a free hand to pick the specific parameters and time frame.

The IA and The Wisdom Council’s survey offers valuable insights into the progress and pitfalls of sustainable investing. While adviser awareness and confidence in SDR labels appear to be high, the lack of alignment between adviser expectations and product availability presents a significant barrier.

Most firms/advisers would benefit from a back to basic approach when it comes to ESG and sustainability.  Making sure that these areas are discussed meets Consumer Duty obligations, discussing the options in an agnostic manner and ensure that clients are able to make an informed choice within their attitude to risk and capacity for loss.

Get these basics right and the firm will be able to demonstrate that clients are making an informed choice in line with their personal preferences and objectives.  That’s good compliance and good consumer outcomes, whatever investment strategy is ultimately selected.

Lee Coates is director of ESG Accord

Editorial Team

Editorial Team

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