Global/EU-SFDR

EU SFDR
Key features

Applies to financial market participants like asset managers, pension providers, insurance companies, investment advisors, etc.
Requires disclosures on the integration of sustainability risks, consideration of adverse impacts, and sustainability objectives promoted.
Product disclosures include how environmental, social, governance (ESG) factors are considered in investment decisions and stewardship policies.
Stricter disclosure standards for products marketed as sustainable investments or promoting ESG characteristics.
Standardised disclosure templates provided for pre-contractual and website disclosures.

Aims to prevent 'greenwashing' and help investors understand sustainability aspects of investments.
Phased implementation began in March 2021, with most rules applicable by 2022.
Overseen by European regulators like ESMA - penalties can be imposed for non-compliance.
Covers financial products made available in the EU, though primarily impacts EU-based firms.

Increased transparency

SFDR increases transparency on sustainability factors and risks for the massive EU financial sector to support sustainable growth. It is a precursor to wider EU sustainable finance regulations.

Types of firms impacted

Asset managers: This includes firms managing investment funds like mutual funds and exchange-traded funds (ETFs).
Institutional investors: This includes pension funds, insurance companies, and other entities managing large investment portfolios.
Credit institutions: This includes banks and other financial institutions offering credit and lending services.

Investment firms: This includes entities providing investment advice and brokerage services.
Venture capital funds and alternative investment funds: These include funds investing in private companies and other alternative assets.

Level of requirements

FMPs with fewer than 500 employees: While not required to produce disclosures on principal adverse impacts (explained below), they must explain why they are not complying.
All other FMPs: These entities are required to comply with the full disclosure requirements under SFDR.

The SFDR also indirectly impacts companies whose securities are marketed in the EU:

Companies seeking to raise capital in the EU by issuing financial instruments like shares or bonds need to consider how SFDR disclosure requirements influence investment decisions.
They may need to adapt their operations and reporting practices to align with growing investor interest in sustainable investments.

Deadline reporting and reference periods

SFDR is already in effect from June 30, 2023. The first deadline for FMPs to report under SFDR, where impacted firms needed to:

Disclose sustainability-related risks in their investment decision-making process and integration policies.
Information on the principal adverse impacts (PAIs) of their investments on sustainability factors, including the environment, social, and employee matters, human rights, and good governance.
Consideration of sustainability factors in their remuneration policies.

In December 31, 2023 the second reference period ends and from June 30, 2024 and onwards:

Ongoing reporting deadline for FMPs under SFDR, including information on the evolution of PAIs over the previous year.
Additionally, from this date, FMPs need to compare the performance on various ESG indicators between the first and second reference periods.

Asset managers: This includes firms managing investment funds like mutual funds and exchange-traded funds (ETFs).
Institutional investors: This includes pension funds, insurance companies, and other entities managing large investment portfolios.
Credit institutions: This includes banks and other financial institutions offering credit and lending services.

Investment firms: This includes entities providing investment advice and brokerage services.
Venture capital funds and alternative investment funds: These include funds investing in private companies and other alternative assets.

FMPs with fewer than 500 employees: While not required to produce disclosures on principal adverse impacts (explained below), they must explain why they are not complying.
All other FMPs: These entities are required to comply with the full disclosure requirements under SFDR.

The SFDR also indirectly impacts companies whose securities are marketed in the EU:

Companies seeking to raise capital in the EU by issuing financial instruments like shares or bonds need to consider how SFDR disclosure requirements influence investment decisions.
They may need to adapt their operations and reporting practices to align with growing investor interest in sustainable investments.

SFDR is already in effect from June 30, 2023. The first deadline for FMPs to report under SFDR, where impacted firms needed to:

Disclose sustainability-related risks in their investment decision-making process and integration policies.
Information on the principal adverse impacts (PAIs) of their investments on sustainability factors, including the environment, social, and employee matters, human rights, and good governance.
Consideration of sustainability factors in their remuneration policies.

In December 31, 2023 the second reference period ends and from June 30, 2024 and onwards:

Ongoing reporting deadline for FMPs under SFDR, including information on the evolution of PAIs over the previous year.
Additionally, from this date, FMPs need to compare the performance on various ESG indicators between the first and second reference periods.