The Sustainable Finance Disclosure Regulation is part of the European Commission’s 2018 Action Plan for financing sustainable growth. The SFDR provides transparency on the sustainability of financial products.
Since the Regulation came into force on 10 March 2021, buzzwords like “sustainability risks” as well as “adverse sustainability impacts” and references to the EU regulation are everywhere.
The statements on the companies’ websites often sound as if they had come from the same pen of a zealous law firm.
But be cautious! Four to five blanket statements and some sustainability statements on the company website are not enough to implement the additional requirements. The SFDR demands a serious and in-depth examination of “sustainable finance” – whether you offer sustainable products or not. Empty promises and phrases must now be backed up with concrete processes and criteria.
What exactly is required?
The Disclosure Regulation consists of three parts. First, it requires financial market participants to address their sustainability risks.
In addition, companies must disclose which adverse sustainability impacts they cause at the company level and (from 2021 also) at the product level – the so-called Principal [SBC-B-B1] Adverse Impact Statement. A small loophole for companies with fewer than 500 employees exists. They can state that they are not investigating any adverse sustainability impacts. However, they must then also explain why not and when they intend to do so. The “Final Report on draft Regulatory Technical Standards” of the European supervisory authorities, published on 02.02.2021, describes which sustainability impacts these can be. It describes indicators, such as greenhouse gas emissions, gender pay gap, energy efficiency, etc., on which reporting is to take place.
And then there is the third and actually most exciting part: the product categories according to which each financial product must be classified.
Which are these product categories?
So far, most companies categorise their products as non-sustainable products according to Art. 6 or as ESG strategy products according to Art. 8. At the moment, only a few dare to approach the superior class of impact products. This is understandable, since precise classification criteria are still lacking. The EU Taxonomy Regulation, which will come into force next year and define criteria for “ecologically sustainable activities”, should help. You can read our blog about this here [link to EU Taxonomy blog]
Merely the beginning
Most players in the sectors have dealt with the issue superficially and have only published the required information on their websites. I doubt very much whether these often vague, ‘greenwashed’ statements are really sufficient. The industry is merely at the beginning, it thus remains exciting to see how the new reporting obligation will also affect the quality of financial products and which standards will be established. As a benchmarking tool, GRESB has for example already announced that it will adapt its report to The SFDR requirements.
Thank you for reading this post! We hope you found it to be informative. Make sure you don’t miss out on our future content: follow our company page on LinkedIn.
