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Sustainable Finance Disclosure Regulation (SFDR)

  • Financial market players
  • Investment advisers
  • 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 (SFDR).

1. Introduction to the SFDR Regulation

The SFDR Regulation aims to impose sustainability transparency obligations both at the entity and product level. This Regulation aims to but to inform investors about sustainability risks, whatever the objective pursued by the investment.

Transparency obligations relate to:

  • The publication of specific information relating to the integration of sustainability risks at entity and product level. These risks are defined as "an event or situation in the environmental, social or governance domain which, if it occurs, could result in or contribute to a significant, actual or potential negative impact on the value of the investment".;
  • Taking into account the negative sustainability impacts in the investment decision-making processes of entities.

2. The three types of financial products concerned:

  • Article 6: The financial product does not no sustainability objective and does not promote environmental or social characteristics; ;
  • Article 8: The financial product performs the Promotion of environmental or social characteristics;
  • Article 9: The financial product includes a sustainability objective resulting in a positive impact on the environment and society;

3. Obligations for financial market participants

3.1. From 10 March 2021, requirement to publish the following elements on their Website :

Article 4 of the SFDR Regulation - Concerns the 3 types of financial products:

  • West Information on their policies for integrating sustainability risks into investment decisions;
  • One statement on due diligence policies regarding principal negative impacts of investment decisions on sustainability factors when they are taken into account in their investments. This information must be published from 30 June 2021 for organisations with more than 500 employees or which are parent companies of a group with more than 500 employees on a consolidated basis.;
  • When they don't do not take into account the negative impacts of investment decisions on sustainability factors, clear information on reasons why they don't do it;
  • The information on the way their Remuneration policies are suitable for the’Integration of sustainability risks.

3.1.2. Article 10 SFDR Regulation - Concerns financial products Article 8 & Article 9

  • A description of the environmental or social characteristics or sustainable investment objective;
  • Instructions regarding methods used to evaluate, measure and monitor environmental or social characteristics or the incidence of sustainable investments selected for the financial product;
  • The information contained in the pre-contractual documents;
  • The information contained in the periodic reports.

3.2. From 10 March 2021, the following must be described in the pre-contractual information published:

3.2.1. Article 6 of the SFDR Regulation - Concerns the 3 types of financial products:

  • The the way sustainability risks are integrated into their investment decisions;
  • The evaluation results of the Likely incidences of sustainability risks on the performance of financial products which they make available;
  • When financial market participants consider sustainability risks to be irrelevant, they must provide a clear explanation of why these risks are not relevant.

3.2.2. Article 8 of the SFDR Regulation - Concerns financial products Article 8:

  • La information manner in which environmental or social characteristics are respected;
  • If a index was designated as a benchmark, information indicating whether and to In what way is this indicator suited to the environmental or social characteristics.

Article 9 of the SFDR Regulation - Concerns financial products Article 9:

  • La information the way in which the designated index is aligned with the sustainable investment objective;
  • An explanation indicating Why and how does the designated index aligned with this objective differ from a broad market index;
  • An indication of the place Where can I find the methodology used for calculating the indices?.

For financial products referred to in Article 9 without a benchmark, the information shall include an explanation of how that objective is to be achieved.

Specific disclosure obligations apply to financial products that aim to reduce carbon emissions (Article 9(3) of the Regulation).

3.3. From 30 December 2022, it will be mandatory to describe the following elements in the pre-contractual information published for the 3 types of products (Article 7):

  • One clear and reasoned explanation indicating whether a financial product takes into account the principal adverse impacts on sustainability factors and, if so, the manner in which it does so;
  • One statement indicating that information on principal adverse impacts on sustainability factors is available in the periodic reports.

Where a financial market participant does not take into account the negative impacts of investment decisions on sustainability factors, it shall, for each financial product, disclose in the pre-contractual information a statement indicating that it does not take into account the negative impacts of investment decisions on sustainability factors, and an explanation of the reasons why it does not do so.

From the first of January 2022

Article 11 of the SFDR Regulation - Obligation to describe the following in periodic reports:

  • The the extent to which environmental or social characteristics are respected;
  • The’Global incidence of financial products in sustainability, by means of relevant sustainability indicators; or where an index has been designated as a benchmark, a comparison between the overall sustainability impact of the financial product and the impacts of the designated index and a broad market index, by means of sustainability indicators.

This point concerns only financial market participants who make an Article 8 & 9 financial product available.

4. Obligations for Investment Advisers

4.1. Article 4 of the SFDR Regulation - Obligation to publish the following on their website:

  • Information on their policies for integrating sustainability risks into investment or insurance advice;
  • Indications regarding the consideration, in their investment advice or insurance advice, of the principal adverse impacts on sustainability factors, or
  • Information indicating why they do not take into account the negative impacts of investment decisions on sustainability factors in their investment advice or insurance advice;
  • Information on how their remuneration policies are aligned with the integration of sustainability risks.

4.2. Article 6 of the SFDR Regulation - Obligation to describe the following in published pre-contractual information:

  • The way in which sustainability risks are integrated into their investment or insurance advice; and
  • The outcome of the assessment of the probable impacts of sustainability risks on the performance of the financial products on which they provide advice.

When financial advisers consider that sustainability risks are not relevant, they must provide a clear explanation of why these risks are not relevant.

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