The REGULATION (EU) 2019/2088 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 27 November 2019 on sustainability‐related disclosures in the financial services sector is known in the industry as the “SFDR“.
To put it simply, the regulation imposes a number of new disclosure obligations on asset managers and financial advisers with regard to various sustainability issues, to make it easier for end-investors to make informed investment choices.
This is just another pillar of the fast evolving EU sustainable finance agenda set up in 2016 when the European Commission established a High-level expert group (HLEG) on sustainable finance, comprising senior experts from civil society, the finance sector, academia and observers from European and international institutions. The group was mandated to provide advice to the Commission on how to:
A number of key initiatives and policies have been introduced since then, such as:
The ultimate objectives of the SDFR disclosures are:
Details of disclosures (e.g. pre-contractual documents, websites, regular reports, etc.) for the various product groups vary, depending on their classification:
The SDFR also introduces the definition of “sustainable investment” i.e. an investment in an economic activity that contributes to an environmental objective, as measured, for example, by key resource efficiency indicators on the use of energy, renewable energy, raw materials, water and land, on the production of waste, and greenhouse gas emissions, or on its impact on biodiversity and the circular economy, or an investment in an economic activity that contributes to a social objective, in particular an investment that contributes to tackling inequality or that fosters social cohesion, social integration and labour relations, or an investment in human capital or economically or socially disadvantaged communities, provided that such investments do not significantly harm any of those objectives and that the investee companies follow good governance practices, in particular with respect to sound management structures, employee relations, remuneration of staff and tax compliance.
As the SFDR comes into force in the EU after the end of the Brexit transitional period, it will not have direct effect in the UK as a matter of EU law, however there a couple of considerations to make:
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