Smaller asset management firms set to face sustainable reporting challenge

The FCA is expanding the scope of its sustainability disclosure requirements beyond climate to all sustainability topics and will apply them across all UK asset managers with over £5 billion assets under management from 2026.

This shift means many smaller firms that previously had no obligation to report detailed information on sustainability‑related governance, strategy, risk management or performance will now fall under the scope of the requirements.

Hayden Morgan, a specialist in sustainable finance at Pinsent Masons, said the expanded scope would raise the reporting bar for previously unaware organisations.

“The SDR regime represents a significant step‑change in regulatory expectations,” he said.

“Asset managers should not underestimate the operational and strategic impact of the new requirements. With FCA expectations now clearly set out, managers should prioritise building robust governance, data systems and disclosure processes without delay.”

In its updated ESG Sourcebook – a part of the FCA Handbook - the regulator sets out the new requirements, which include entity‑level disclosures through annual sustainability entity reports, building on the existing climate‑related disclosure rules.

In addition, certain managers must publish product‑level disclosures where a fund uses an FCA sustainability label, or where sustainability‑related terms are included in the fund name or marketing materials.

Under the SDR regime, “small” asset managers must publish their first annual sustainability entity report by 2 December 2026.

Larger firms - those with assets under management of more than £50 billion - should have already published their first reports in December last year.

“To comply with this new regime, prudent managers should therefore consider what their governance processes, controls and procedures used to monitor are, how these are managed, and oversee their sustainability-related risks and opportunities,” explained Morgan.

“They should also look at their strategy for managing sustainability-related risks and opportunities, and what processes they use to identify, assess, prioritise and monitor sustainability-related risks and opportunities.

“It would also be timely to look at their performance in relation to sustainability-related risks and opportunities, including progress towards any targets set or is required to meet by law or regulation.

“Prudent managers will begin establishing these internal processes long before the December 2026 regulatory deadline.”

To support firms, the FCA explicitly references several international sustainability standards which managers may draw on, including the IFRS S1 general requirements for disclosure of sustainability‑related financial information, providing a global baseline for disclosing governance, controls and oversight processes for sustainability‑related risks and opportunities.

It also highlights SASB standards, supporting the identification of financially material sustainability topics, and the GRI standards for supporting reporting on broader economic, environmental and social impacts. This alignment reflects the FCA’s wider drive to embed robust, globally aligned disclosure standards across the UK financial services sector, and UK listed firms.

Elizabeth Budd, a financial regulation expert at Pinsent Masons added that the expansion of the regime to smaller asset managers has been sitting in the ESG Sourcebook for some time.

“With some many other regulatory changes vying for investment managers’ attention this may have fallen down the “to-do” list,” she warned.

“Experience from working with larger managers preparing their reports shows that there is a fairly lengthy lead time in order to meet the deadline.”