What’s the context?

Sustainable finance integrates ESG factors into investment decisions to support long-term value and resilience. For pension schemes, this means:

  • aligning portfolios with sustainability goals
  • managing climate and social risks, and
  • meeting growing regulatory expectations on disclosure and governance.

Broader Government initiatives on ‘greening finance’

In June 2019, the UK Government said it was the first major economy in the world to pass laws to bring all greenhouse gas emissions to net zero by 2050.

There have been several moves to achieve this goal, setting the backdrop for regulations specific to occupational pension schemes.

On 18 October 2021, the Treasury published its policy paper Greening Finance: A Roadmap to Sustainable Investing. The paper set out the Government’s ambition to green the financial system and align it with the UK’s net zero commitment. It built on the Government’s 2019 Green Finance Strategy, and indicated that asset managers, regulated asset owners and listed companies would be required to publish transition plans that consider the Government’s net zero commitment – or provide an explanation if they had not done so.

Following this, on 2 November 2021, the Treasury published Fact Sheet: Net Zero-aligned Financial Centre, providing guidance on climate (or net zero) transition plans. This guidance provides more detail on what a transition plan is and what is required.

In June 2025, the Department for Energy Security and Net Zero published a consultation on climate-related transition plan requirements on how the Government could fulfil its manifesto promise of requiring financial institutions, including pension funds, to develop and implement credible transition plans that aligned with the 1.5°C goal of the Paris Agreement. The Department for Work & Pensions (DWP) asked the Pensions Regulator (TPR) to assess the practicalities of transition plans for pension schemes.

Sustainability Disclosure Requirements (SDR) and labelling

On 28 November 2023, the FCA published a policy statement on SDR and investment labels. The policy statement is intended to support the Government’s commitment to a net-zero economy, and to build on announcements made by the Government in July 2021 and a consultation published by the Financial Conduct Authority (FCA) on 25 October 2022.

The policy statement sets out the FCA’s final rules and guidance to help consumers navigate the market for sustainable investment products. It requires that sustainability-related terms be used in the naming and marketing of investment products in a way that is proportionate to the sustainability profile of the product.

Applying predominantly to FCA-regulated entities and investment products, the final package of measures include:

  • an anti-greenwashing rule for all FCA-authorised firms
  • four labels to help consumers navigate the investment product landscape
  • naming and marketing rules for investment products, to ensure the use of sustainability-related terms is accurate
  • consumer-facing information to provide consumers with better, more accessible information to help them understand key sustainable features of products
  • detailed information in pre-contractual, ongoing product-level, and entity-level disclosures, targeted at institutional investors and consumers seeking more information, and
  • requirements for distributors to ensure that product-level information is made available to consumers.

The FCA will supervise the regime using its existing supervisory and enforcement powers.

What are my compliance obligations?

Naming and marketing

A general anti-greenwashing rule was introduced in May 2024. It clarified that all FCA-regulated firms must ensure that the naming and marketing of financial products and services in the UK is “clear, fair and not misleading, and consistent with the sustainability profile of the product or service”. This rule is intended to help address the risk of misleading sustainability claims in relation to products that do not use one of the standardised investment labels.

The FCA published finalised guidance on the new provision on 23 April 2024, which came into force on 31 May 2024.

Classification and labelling

A fundamental component is the classification and labelling of sustainable investment products. The intention is for firms to provide transparency on the types of assets their products will or will not invest in. In line with the Consumer Duty, this will help consumers distinguish between different types of products and investments.

Firms will not be able to use certain sustainability-related terms (such as ESG, green and sustainable) in product names and marketing materials unless the product uses one of the four standardised sustainable investment product labels.

The four labels represent different sustainability objectives and include different approaches to pursue those objectives depending on whether the product aims to invest:

  1. in assets that are environmentally and/or socially sustainable (“sustainability focus”)

  2. to improve the environmental/ social sustainability of assets over time, including through stewardship (“sustainability improvers”)

  3. in solutions to environmental or social problems (“sustainability impact”)

  4. in a combination of all the labels (“sustainability mixed goals”)

Firms can choose whether or not to use the labels. But they must do so if they want to use the restricted sustainability-related terms in names and marketing.

If the labels are used, firms must meet certain qualifying criteria and ensure the criteria is met on an ongoing basis – that is, the product must have an explicit environmental and/or social sustainability objective, and the firm must have an investment policy and strategy for the product aligned with its sustainability objective.

Disclosure requirements

The FCA has introduced disclosure requirements for UK FCA-regulated products with or without a sustainable investment label. The FCA recognises that disclosures will “inherently be more limited” for products that do not have a label.

Proposed disclosures are:

  • consumer-facing product-level disclosures – intended to help consumers understand the sustainability-related features of an investment product (including details of the product’s sustainability objective, investment approach and performance against the objective)
  • detailed product-level disclosures – aimed at institutional and retail investors, and
  • entity-level disclosures – consistent with the Task Force on Climate-related Financial Disclosures (TCFD), firms must disclose their governance, strategy, risk management, metrics and targets relating to their sustainability risks and opportunities. All firms with over £5 billion of assets under management must make these disclosures annually in the sustainability entity report.

The labelling and disclosure requirements will initially apply to FCA-regulated asset managers and their UK-based fund products and portfolio management services. This means that trustees of occupational schemes will not be directly affected.

But there may be an indirect effect via the investment funds that trustees invest in. For DB schemes, the labelling and disclosure requirements may be useful, albeit limited to UK investment products.

The FCA has said that “in the medium term, we will consider extending the regime to pension products, as we recognise that the potential harm we are seeking to address with this regime may also arise with these products”.

The intention is for the FCA to develop proposals for pension products by working with the DWP and TPR. This will add to, and sit alongside, existing climate governance and reporting obligations, which apply to FCA-regulated schemes as well as occupational schemes.

Although no direct action is currently required of pension schemes, this is a developing area to watch. Trustees should be aware of the proposed SDR and labelling regime and how it may impact their scheme in the future.

  • For details on how social factors are being considered alongside environmental factors in pension scheme investment, see Social factors

It remains to be seen exactly how the new fund labelling, disclosure and anti-greenwashing rules will flow through to occupational and trust-based pension schemes. Although not currently within the FCA’s remit, the DWP may in the future introduce regulations for occupational and trust-based schemes that dovetail with the new FCA rules.

As long as the requirements apply only to FCA regulated entities then, while those managers and fund providers will have to take great care with their fund descriptions, disclosures and labelling, there will be no required flow-through to the end-user, who is a member of a trust-based DC scheme – and where the trustees of that scheme are not subject to the same rules. It is possible that trustees of DC schemes will wish to voluntarily adopt the labelling of the underlying FCA-regulated funds in which the scheme invests.

For DC master trusts, this could become a differentiator among providers keen to promote their DC default as being invested in funds with a “sustainability focus”. It may also help trustees to more clearly label self-select funds, particularly where members want investment choice to choose funds with “sustainability impact”.

For DC master trusts tied to a particular provider, and where that provider’s products are already subject to the new disclosure and labelling requirements, master trust trustees may choose to pass those disclosures through to their members.

For trustees of DB schemes, it’s less obvious that there will be any pass-through of any underlying fund labelling. But the enhanced provider disclosures may assist trustees in their scrutiny of the scheme’s investments and member reporting in implementation statements and TCFD reporting.

What are the latest developments?

Details of plans for a UK Green Taxonomy were first published in 2021 setting out the criteria which specific economic activities must meet to be considered environmentally sustainable, or taxonomy aligned. Details of the proposed taxonomy were set out in a policy paper and drew on the EU’s approach pursuant to Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment and amending Regulation (EU) 2019/2088, which the UK helped design as a former Member State.

The Greening Finance Roadmap indicated that the UK Green Taxonomy would adopt the same six environmental objectives as the EU taxonomy. Some divergence was expected, to ensure that it is “suitable for the UK market and consistent with UK government policy”, but there is also a recognition that international alignment is desirable. Reporting against the UK Green Taxonomy was to form part of the SDR disclosures.

A Green Taxonomy Advisory Group was established by the Government in June 2021 to advise on the UK Green Taxonomy. A consultation was initially planned for Q1 2022 ahead of legislation coming into force by the end of 2022. However, it was delayed by controversy over the inclusion of gas, and also by leadership changes within the Government.

Consultation

A consultation was finally launched in November 2024 and HMT published its response on 15 July 2025.

The Government has determined that implementing a UK green taxonomy is not the optimal approach for facilitating the green transition and, consequently, it will not be included in the UK sustainable finance framework. As a result, the development of a UK green taxonomy will not advance further.

What’s coming down the track?

Feedback from the November 2024 consultation on the UK green taxonomy was varied, with 55% of respondents expressing mixed or negative views.

The Government concluded that there is insufficient evidence to suggest that a UK Green Taxonomy would proportionately achieve objectives such as channelling capital effectively or reducing greenwashing. Notably, there is limited indication that taxonomies have a direct impact on investment risk profiles or economics. The Government response identifies alternative strategies, including the UK Sustainability Reporting Standard transition plans, and sector-specific roadmaps, as more suitable policies for achieving these aims.

Despite this decision, the Government affirms its commitment to establishing an effective sustainable finance framework, prioritising policies identified by stakeholders as having the greatest impact. Ongoing review will continue to ensure sufficient measures are in place to address greenwashing outside the context of a green taxonomy.

EU: Omnibus sustainability package

Towards the end of 2024, the European Commission indicated that it planned to introduce Omnibus legislation that would encompass sustainability due diligence and reporting requirements with an intention to “reduce bureaucracy” without changing the content of law.

On 29 January 2025, it published a communication on a Competitiveness Compass for the EU, in which it stated that it would launch the first of a series of Omnibus packages in February 2025. These would simplify existing legislation on sustainable finance reporting, sustainability due diligence and the sustainable taxonomy. This was followed by the Commission’s annual Work Programme for 2025, published on 11 February 2025. It referred to a series of Omnibus packages aimed at legislative simplification and confirmed that the first sustainability Omnibus package was then published on 26 February 2026 with Member States required to transpose new rules into national law by dates in 2027 and 2028.