Sustainable Finance Disclosure Regulation (SFDR)

The Sustainable Finance Disclosure Regulation (SFDR) is an EU regulation aimed at creating transparency in the financial sector by requiring financial market participants to disclose the impact of their investments on Environmental, Social, and Governance (ESG) factors. It distinguishes between different levels of sustainability in financial products to promote sustainable investments and prevent greenwashing.

The SFDR was introduced as part of the EU Action Plan on Sustainable Finance to increase transparency in the financial sector and promote sustainable investments. It applies to asset managers, financial advisors, and other financial market participants who are now required to provide detailed information on how they incorporate sustainability risks into their investment decisions. The regulation includes various reporting obligations categorized into Articles 6, 8, and 9.

• Article 6 refers to products that do not consider sustainability aspects.
• Article 8 applies to products that promote environmental or social objectives.
• Article 9 pertains to products with an explicit sustainability objective.

These regulations are intended to help investors make informed decisions and provide transparency regarding the environmental and social impact of their investments. The SFDR is a key component of the EU’s broader efforts to promote sustainable financial products while preventing "greenwashing," or the misleading labeling of products as "green" or sustainable. The SFDR also interacts with other EU regulations, such as the EU Taxonomy and the CSRD (Corporate Sustainability Reporting Directive), to establish a unified and comprehensive sustainability reporting framework across Europe.