Content of this page:

Overview

The SFDR was adopted by the European Parliament and the Council with the aim of increasing transparency regarding the sustainability of financial products. Along with the Taxonomy Regulation, the SFDR forms an integral part of the EU Action Plan on Financing Sustainable Growth (COM(2018) 97 final). The Regulation introduced harmonized EU-wide disclosure rules regarding the sustainability of financial products.
 

Scope

The SFDR applies to ...

• financial market participants (e.g., a credit institution or investment firm providing portfolio management) and

• financial advisers (e.g., a credit institution or investment firm providing investment advice)

Disclosure requirements

Entity level:

• Website disclosure on:

  • An entity’s policies for integrating sustainability risks in the investment decision‐making process or financial advice (Article 3)

  • Due diligence policies about how an entity considers principal adverse impacts (PAIs)¹ on sustainability factors (Article 4); complyor-explain for smaller financial market participants

  • Integration of sustainability risks in remuneration policies (Article 5)

Product level:

• Precontractual disclosure:

  • Integration of sustainability risks in investment decision/advice; assessment of impacts of sustainability risks on financial returns (Article 6); comply-or-explain

  • For financial market participants that consider PAIs: consideration of the product’s PAIs on sustainability factors (Article 7); comply-or-explain

  • For products that promote ‘environmental’ or ‘social’ characteristics (Article 8): information on how the characteristics are met as well as disclosure on alignment with the EU Taxonomy

  • For ‘products with sustainable investment objective’ (Article 9): explanation of how the objective is met as well as disclosure on alignment with the EU Taxonomy

• Website disclosure for Article 8 and 9 products:

  • Summary

  • Description of the characteristics/objectives and methodologies

  • The precontractual disclosures provided for Article 8 and 9 products

• Information in periodic reports:

  • Information regarding the consideration of PAIs on sustainability factors (Article 7)

  • For Article 8 products: information on the extent to which characteristics are met

  • For Article 9 products: overall sustainabilityrelated impact in comparison to any used reference index and a broad market index

  • Utilization of information in management reports/nonfinancial statements (NFRD) possible

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¹ PAIs are ‘effects on sustainability factors that are negative, material or likely to be material’

Regulatory technical standards

In April 2022, the European Commission also adopted a delegated regulation on regulatory technical standards (RTS) specifying the details of the content, methodologies and presentation of disclosures (Commission Delegated Regulation (EU) 2022/1288). Those standards are set to apply from 1 January 2023 onward.

Updates

Updates to this page:

Links and Sources

• EUR-Lex, SFDR

• Hummel, K., Jobst, D., 2022. The Current State and Future of Corporate Sustainability Reporting Regulations in the European Union. (SSRN)

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