Sustainable Finance Disclosure Regulation
On 10 March 2021, a new EU regulation for sustainable investments came into force. The aim of the Sustainable Finance Disclosure Regulation (SFDR) is to increase transparency for sustainability in the financial market and to prevent financial market participants from greenwashing. Under the regulation, financial-market participants are required to report on the integration of ESG risks and the consideration of the principal adverse sustainability impacts on sustainable development in the investment process of products. Participants are also required to report on the provision of ESG related disclosures for financial products. The EU regulation primarily affects financial market participants and financial advisors. The regulation imposes certain requirements both at the company level and at the product level.
Under the SFDR, financial market participants and financial advisors are required to publish product information related to sustainability for environmental, social and governance (ESG) related products and non-ESG products. The regulation requires entities to classify the products or advice they offer in the following three categories: Article 6, Article 8 and Article 9. The definitions of these three classifications are as follows: