SFDR

Sustainable Finance Disclosure Regulation (SFDR) is an EU regulation designed to enhance transparency in the market for sustainable investment products and to curb greenwashing. It obliges financial market participants and financial advisers to disclose how sustainability risks are integrated into investment decisions, and how sustainability factors and adverse impacts are considered in product descriptions and marketing.

Scope: Applies to asset managers, investment firms, banks, insurers, pension funds operating in the EU, and to entities offering financial advice. It requires entity-level disclosures in pre-contractual documents and on websites, and product-level disclosures for financial products with sustainability features or objectives.

Product classification: Article 8 funds promote environmental or social characteristics (or have them as an investment objective); Article 9 funds have a sustainable objective. Funds that do not promote sustainability are subject to lighter rules (Article 6).

Disclosures: Entities must disclose how sustainability risks could affect returns (and the likely material negative impacts on endpoints, the principal adverse impacts). Product-level disclosures include the sustainability indicators used, how those indicators are measured, and the methodologies for a given product; and information on alignment with the EU Taxonomy where applicable. The PAI indicators and taxonomy references are detailed in delegated regulations and required disclosures.

Impact and enforcement: SFDR is part of the EU's sustainable finance framework, linking with the EU Taxonomy and other rules. Compliance is monitored by national competent authorities; penalties may apply for misleading or incomplete disclosures. The regime has prompted ongoing revisions and elaborations in subsequent delegated acts.