Is Sustainable Finance Disclosure Regulation SFDR required for my firm?

Sustainable Finance Disclosure Regulation - SFDR - has increasingly emerged in conversations when firms discuss ESG regulations in the EU. While the first milestone of 10th March 2021 has passed, there are still a few SFDR milestones firms need to keep in mind.

The final SFDR Regulatory Technical Standards has been published.

What is SFDR?

SFDR, which is the abbreviation for 'Sustainable Finance Disclosure Regulation', forms part of the ‘Disclosures’, one of the three building blocks that the EU set out in 2018 for a sustainable financial framework. The other two building blocks are ‘EU Taxonomy’ and ‘Investment Tools’.

The main purpose of the EU sustainable finance framework is to give clear, consistent and robust guidance to channel private financial flows into relevant economic activities. SFDR, as part of the ‘Disclosures’ building block, aims to equip investors with information to make informed sustainable investment decisions. Disclosure requirements include the impact of a company’s activities on the environment and society, as well as the business and financial risks faced by a company due to its sustainability exposures.

Who is in scope for SFDR?

The scope for SFDR are financial market participants offering investment products and financial advisers in the EU. So if you are one of these firms, SFDR is applicable to you.

What is required as part of SFDR reporting?

The SFDR requires disclosures of entity and product level on sustainability risks and principal adverse impacts.

Entity level disclosure

Financial market participants

To disclose on the website

• Sustainability risk policy - Information about policies on the integration of sustainability risks into the investment decision-making process
• Adverse sustainability impact - (i) Consideration of principal adverse impacts of investment decisions on sustainability factors; (ii) Statement on due diligence policies; (iii) Mandatory for large entities and large holdings; (iv) Comply or explain for all other entities
• Remuneration - Information on how remuneration policies are consistent with the integration of sustainability risks

Financial advisers

To disclose on the website

• Sustainability risk policy - Information about policies on the integration of sustainability risks into the investment advice or insurance advice
• Adverse sustainability impact - (i) Consideration of principal adverse impacts on sustainability factors in the investment advice or insurance advice; (ii) Comply or explain
• Remuneration - Information on how remuneration policies are consistent with the integration of sustainability risks

Product level disclosure

• Pre-contractual disclosure - (i) Integration of sustainability risks; (ii) Principal adverse impact; (iii) Additional sustainability disclosures
• Product website disclosure - disclose certain product information on their website for each product supplementing the pre-contractual disclosure
• Product periodic reports - (i) Principal adverse impacts; (ii) Additional sustainability disclosures; (iii) Additional green taxonomy related information

What are the important milestones of SFDR?

While the first milestone of 10th March 2021 has passed, there are still a few SFDR milestones firms need to keep in mind.

How can we help?

At Forefront Future, we have a great passion to provide innovative and agile software solutions for ESG (Environmental, Social and Governance) data management and investment screening to financial institutions. For further information on how we can asist with your business, please do not hesitate to contact us.