Podyam – Take ownership of your ESG data

Sustainable Finance Disclosure Regulation

In 2018, the European Commission established an action plan for financing sustainable
growth, with the adoption of a series of regulations including the regulation on the
publication of information on sustainable investments and sustainability risks Sustainable
Finance Disclosure Regulation. In this article we will talk about the main objectives of this regulation, which is concerned by this regulation and ultimately whether it will lead to a real change in investment practices.

What is the SFDR

The so-called SFDR regulation is one of the variants of the European climate action plan following the 2015 betting agreement in a few words it helps to redirect financial flows towards the financing of sustainable activities these being defined through another European regulation which is taxonomy. The objective of the Sustainable Finance Disclosure Regulation is to establish harmonized transparency rules within the European Union regarding the consideration of sustainability in investments made by financial actors. This risk is apprehended according to two criteria:

  • First, the impact that external sustainability events can have on the performance of the financial product.
  • Secondly, the negative impact of the investment.

To comply with these regulations, management companies must classify their fund ranges according to the level of integration of sustainability risk, namely products that promote environmental and social characteristics, those that incorporate a sustainable investment objective and other products.

What are the objectives of the Disclosure Regulation?

The main objectives of the regulation are to ensure alignment between trade documents and the reality of practices, to ensure comparability of products and finally to steer investors towards more responsible investments while preventing greenwashing. Ultimately, it allows the final investor to understand the degree of integration of social environmental factors and ESG governance of their future investments. One of the other objectives of this new regulation is to standardize and standardize standards and classifications at European level to make them more understandable and transparent but also to be able to measure concretely the societal impact of responsible finance on the achievement of the European objective.

Who is concerned?

The Disclosure Regulation specifies that financial market participants and financial advisors are concerned by the obligations of this new text. Management companies are therefore doubly concerned as producers of financial products but also, where appropriate, as advisors in financial instruments or insurance intermediaries

What does that change for us?

Concretely, the application of the SFDR implies 3 changes:

  • To take and use the new vocabulary related to the introduction of the regulations including the taxonomy.
  • Integrate the redesign of presentation and sales documents to be compliant with it.
  • Inform and train our prospective customers and employees on these new uses and its new sustainability indicators.

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