The SFDR aims to standardise sustainability disclosures to assist institutional investors and retail clients in better understanding, comparing, and monitoring investment funds’ sustainability features.
As part of the Sustainable Finance Disclosure Regulation, corporations must disclose how they manage environmental and social risks, promote sustainable investing goals, and manage sustainability risks.
On March 10th, 2021, the regulation went into effect, so now is the perfect opportunity to brush up on what it entails, who it affects, and the most critical steps to take to ensure compliance in a timely manner. And we’re here to assist!
What is the EU SFDR?
The European Commission endorsed the SFDR as a proposal for “a regulation on disclosures pertaining to sustainable investments and sustainability risks” in 2019. Increasing the amount of information available to financial market participants (FMPs) about the sustainability of growth is the major objective. In order to counteract “greenwashing” and standardise sustainability disclosure, it includes disclosure rules for businesses and products.
Effective as of March 10, EU FMPs must now divulge information on their sustainability policies and financial products (product-level). Additional reporting requirements for FMPs include reporting on their Principal Adverse Impacts (PAI) on both a business and product level. Sustainability indicators like GHG emissions, human rights violations, and waste management are all included in the PAIs list of factors enterprises must examine when making investment decisions. The goal is to ensure that all companies disclose their sustainability practises in the same way. Sustainability, after all, is a group effort.
The SFDR affects whom?
Financial market participants (FMPs), which include investment firms, asset managers, pension funds, insurance companies, venture capital funds, banks, credit institutions offering portfolio management, or financial counsellors, are covered by the SFDR regulation. The SFDR does not apply to FMPs with fewer than 500 employees. They must, however, provide an explanation in accordance with the comply-or-explain approach.
The regulations directly impact fMPs in the EU, but they also have a substantial (indirect) impact on enterprises outside of Europe, particularly those with worldwide supply networks. Many believe that the financial market has reached a point of no return due to the regulation’s profound impact on long-term viability. From here on out, things only grow greener.
How to Apply the EU SFDR?
Is it going to be effective in practise? Since the first SFDR requirements are rapidly coming, now is the time to take action. We’ve outlined the most important measures for you to follow:
Scope:
See how your company and its goods fit within the SFDR so that you can adjust your strategy properly.
Know your sustainability efforts and status:
Regardless of how far you’ve progressed on your sustainable journey, gap analysis and risk assessments on the most current data, activities, and policies will help you find any potential blind spots or holes in your strategy.
Set up a customised SFDR plan:
Determine what steps your company must take to ensure full compliance with the new legislation. Create an action plan for your sustainability risk policies, due diligence policies, communication strategies, and payment policies.
SFDR will not be put off indefinitely:
Prepare yourself immediately! It may seem like a long time away, but establishing an SFDR plan involves a lot of effort and resources. To ensure a stress-free implementation, take advantage of the additional time granted and get started as soon as feasible.
Conclusion:
There’s no time to spend in the EU’s nimble approach to the financial sector’s transition to a sustainable one. As a result, today’s market leaders may not be in charge of the market in the future. It’s time for everyone to hop on the sustainable business bandwagon.
You may now collect your SFDR data using the GRESB solution! Using GRESB Sustainable Investments is the fastest and easiest way to gather, calculate, and aggregate all the data you need to boost your transparency and get ready to report on time.
