What is SFDR?
This is EU Regulation 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability disclosures in the financial services sector (known as the SFDR or Disclosure Regulation).
The regulatory technical standards (RTS) to be used by financial market participants when reporting sustainability information under this SFDR were published in the EU's Official Journal on 17 February 2023. Read our article on the topic: The Commission finally adopts the final version of RTS for the SFDR.
The Sustainable Finance Disclosure Regulation, along with the Taxonomy Regulation and the Corporate Sustainability Reporting Directive (CSRD), form the basis of the main regulations on sustainable finance.
Find out more about the Green Finance Regulation.
Entry into force
SFDR came into force on 10 March 2021.
The technical standards specifying the provisions applicable to the financial products defined in Articles 8 and 9 came into force in January 2023.
What are the SFDR requirements for companies?
All companies that market or advise on financial products in the European Union have transparency obligations with regard to non-financial or ESG (Environmental, Social and Governance) criteria.
SFDR aims to strengthen transparency obligations on ESG issues within the European Union, in particular to make it easier to compare financial products.
SFDR imposes rules on the publication of information on the sustainability of an investment.
What does the SFDR classification of funds under Articles 6, 8 and 9 entail?
Management companies must use the SFDR classification to provide investors with clear and comparable information on the sustainability of their investments.
SFDR defines three categories of financial products according to their contribution to sustainability:
"Article 9" investments, which have a sustainable investment objective.
"Article 8" investments, which declare that social and/or environmental criteria are taken into account.
"Article 6" investments, which do not have a sustainable investment objective and do not declare that they take ESG criteria into account. These are all other investments that are neither "Article 8" nor "Article 9".
FAQs
The SFDR aims to bring a level playing field for financial market participants (“FMP”) and financial advisers on transparency in relation to sustainability risks, the consideration of adverse sustainability impacts in their investment processes and the provision of sustainability-related information with respect to ...
What are the main points of SFDR? ›
To achieve the EU SFDR's goal of improving sustainable finance by increasing transparency and creating standards, asset managers and advisers must disclose the manner in which they consider two key factors: Sustainability Risks and Principal Adverse Impacts.
What are the required disclosures for SFDR? ›
SFDR disclosure requirements can be divided into organization-level reporting and fund/product-level reporting. At the organization level, firms must at least disclose: the potentially negative impacts an investment decision may have on ESG factors, such as water usage, energy consumption, biodiversity or human rights.
What are the principles of SFDR? ›
SFDR requires that Article 8 or Article 9 products do not invest in companies that do not follow good governance practices. This policy describes how we determine good governance in the context of SFDR and for those funds and segregated accounts that fall under the scope of the regulation.
Who is eligible for SFDR? ›
Who does EU SFDR apply to? The regulation applies to all financial market participants (“FMPs”) and financial advisors (“FAs”) in the EU – including any with EU shareholders or marketing themselves in the EU – and sets out clear disclosure requirements.
Who needs to comply to SFDR? ›
The SFDR applies to financial advisers and market participants within the EU, particularly those managing assets and providing investment advice. While it primarily targets larger firms with over 500 employees, smaller firms are also encouraged to comply with certain aspects of the regulation.
What are the benefits of SFDR? ›
The SFDR is a European Union (EU) regulation designed to accelerate flows of finance to sustainable investments, level the playing field, increase transparency in relation to sustainability risks, and reduce the potential for greenwashing of investment products.
What are the problems with SFDR? ›
Problems with SFDR stem from a disconnect between its intended use as a system for identifying appropriate fund disclosure levels and its adoption as a de-facto environmental, social and governance (ESG) labelling system used by managers to signal the sustainability ambition of products.
Who is exempt from SFDr? ›
Financial market participants with fewer than 500 employees are exempt from producing a principal adverse impact statement. Nevertheless, if they choose not to comply, they must provide a clear explanation for their non-compliance.
Which funds are subject to SFDR? ›
Under SFDR, financial products are separated into three different categories. On one end of the spectrum, there are financial products that do not have any sustainability drivers (“Article 6 funds”) and on the other end, there are funds that have sustainable investment as their objective (“Article 9 funds”).
Who does the SFDR Apply To? The SFDR regulation applies to EU-based FMPs with 500+ employees, such as investment firms, pension funds, asset managers, insurance companies, banks, venture capital funds, and credit institutions offering portfolio management.
What are the factors of SFDR? ›
Sustainability factors encompass environmental, social, and governance (ESG) considerations, including respect for human rights, anti-corruption efforts, and other relevant ethical practices that can influence the financial performance and impact of investments or companies.
What is the purpose of the SFDR regulation? ›
One of those is the Sustainable Finance Disclosure Regulation – also known as the SFDR for those of you who keep track of the acronyms. SFDR's main purpose is to reorientate capital towards more sustainable businesses and increase transparency on sustainability among financial institutions and market participants.
What are the indicators of SFDR regulation? ›
The indicators cover a broad range of issues, such as greenhouse gas emissions, water consumption, waste production, and impacts on biodiversity, as well as social and employee matters, human rights, and anti-corruption practices.
Who governs SFDR? ›
Sustainable Finance Disclosures Regulation - European Commission.
What is the purpose of the disclosure regulation? ›
The Disclosure Regulation intends to provide harmonized disclosure requirements for investment products which: Promote environmental and/or social objectives; and. Have “sustainable investment” (defined as investing with an environmental objective) as their objective.
