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EU | Effective: 2020

Sustainable Finance Disclosure Regulation (SFDR)

Institutional investors, insurance companies, pension funds, and asset managers operating in the EU need to tackle reporting requirements imposed by the SFDR. All financial market participants whose products are marketed in the EU have a legal obligation to provide transparent and accurate data on the investment fund’s ESG performance.

The reporting scope depends on the fund’s classification – the SFDR distinguishes three categories of disclosure based on the extent to which the fund considers sustainability risks, whether it promotes social and environmental goals, and whether it has a sustainable investment objective. Consequently, investment funds qualify as either one of the three categories:

Article 6 category – funds that do not promote ESG goals and do not prioritize sustainability in their investment strategy.

Article 8 category (also known as “light green”) – funds that promote investments with positive social and environmental qualities but do not have a sustainable investment objective.

Article 9 category (or “dark green”) – funds that have a sustainable investment objective, where the majority of the portfolio consists of ESG-focused investments.

Investment funds are free to decide which category they want to be labeled, as long as they can meet the reporting criteria set for the chosen category. Article 8 and Article 9 funds need to report on the EU Taxonomy alignment of their sustainable investments.