Sustainable Finance Disclosure Regulation (SFDR)

The Sustainable Finance Disclosure Regulation (SFDR) is a key part of the EU's Sustainable Finance agenda, aimed at improving transparency and comparability of sustainability-related disclosures in the financial services sector[1][2][5].

Key points about the SFDR:

• Requires financial market participants and financial advisers to disclose how they consider sustainability risks in their investment decision-making process and the potential adverse impacts of their investments on the environment and society[1][2][6].
• Applies to a wide range of financial products, including UCITS, AIFs, separately-managed portfolios, and financial advice provided within the EU[1][7].
• Introduces product categorizations based on the degree of sustainability focus: Article 6 (no specific sustainability focus), Article 8 (promotes environmental/social characteristics), and Article 9 (has sustainable investment as its objective)[5][7].
• Disclosures are required at both the entity and product level, via websites, pre-contractual documents, and periodic reports[1][6]. The first set of disclosures (Level 1) came into effect in March 2021, with more detailed requirements (Level 2) applicable from January 2023[6][7].
• Aims to combat greenwashing by mandating greater transparency around ESG claims and enabling investors to better compare the sustainability profiles of different investment products[2][5].

The SFDR is closely linked with the EU Taxonomy Regulation which establishes criteria for determining environmentally sustainable economic activities[3][7]. Together, they form a comprehensive regulatory framework to reorient capital flows towards sustainable investments in line with the EU's climate and environmental objectives[1][5].

Citations: [1] https://finance.ec.europa.eu/sustainable-finance/disclosures/sustainability-related-disclosure-financial-services-sector_en [2] https://www.eurosif.org/policies/sfdr/ [3] https://finance.ec.europa.eu/regulation-and-supervision/financial-services-legislation/implementing-and-delegated-acts/sustainable-finance-disclosures-regulation_en [4] https://www.anthesisgroup.com/regulations-hub/sustainable-finance-disclosure-regulation/ [5] https://esgtree.com/a-brief-guide-to-sfdr-reporting-and-compliance/ [6] https://kpmg.com/ie/en/home/insights/2021/03/what-is-the-sfdr-sustainable-futures.html [7] https://am.jpmorgan.com/fi/en/asset-management/institutional/investment-strategies/sustainable-investing/understanding-SFDR/ [8] https://www.securities-services.societegenerale.com/de/insights/views/news/sfdr-taxonomy-regulation-green-finance/