Sustainable Finance Disclosure Regulation (SFDR)
The Regulation on sustainability-related disclosures in the financial sector has been in force since 2021. This Regulation is better known as the Sustainable Finance Disclosure Regulation (SFDR). The SFDR is part of the European Commission’s Action Plan for Financing Sustainable Growth.
Purpose of the SFDR
The SFDR builds on the UN’s Sustainable Development Goals and the Paris Agreement designed to substantially reduce the risks and effects of climate change. The aim of the SFDR is to improve the provision of information to end investors on the sustainability impacts of the investment policy and investment decisions of financial market participants.
To whom does the SFDR apply?
In principle, the SFDR applies to all financial market participants, including banks, investment firms, pension funds, asset managers (including managers falling under the AIFMD registration regime) and life insurers (insofar as they offer insurance-related investment products). The SFDR also applies to financial advisers with three or more employees that provide investment advice or advice about insurance-related investment products.
The disclosure obligations following from the SFDR apply to all these market parties, irrespective of whether or not they offer sustainable financial products. However, there are differences in transparency requirements, of which some apply at company level and others at product level, depending on the products offered and on whether these are promoted as sustainable or green.
Requirements under the SFDR
The SFDR lays down disclosure rules for financial market participants and financial advisers in respect of:
the consideration of adverse sustainability impacts in the investment policy or advice, at entity level and at product level;
the integration of sustainability risks, the sustainability risk policies and the remuneration policies in relation to the integration of sustainability risks.
In addition, financial market participants offering sustainable products must provide transparency on the manner in which a product gives substance to sustainable objectives or characteristics, both pre-contractually and on a periodic basis.
On the underlying pages you will find more information on the requirements following from the SFDR and what the AFM expects from you.