The first stage of the European Union’s (EU) Sustainable Finance Disclosure Regulation (SFDR) came into effect on 10th March 2021. Despite its seeming complexity, the initiative has one core objective –  to avoid the ‘greenwashing’ of financial market participants.

“SFDR sets out rules on transparency and requires FMPs to disclose how they consider sustainability risks in their investment processes and products and how they deal with principal adverse impacts of their investment decisions on sustainability factors, ”

~ Rebecca Macé-Balebs, Senior Associate at Ogier.

To accomplish this,  asset managers will be required to publish both pre-contractual and disclosure statements on their websites, distinguishing their products into three major categories:

  • Funds investing in companies with a specific sustainability objective
  • Funds that promote environmental sustainability but does not have a specific objective
  • Funds that lack ESG factors or goals

“The new regulation is about providing more transparency and authenticity for our clients—eliminating examples of ‘greenwashing’ or those products where sustainability is not truly embedded into processes. Investors want their provider to become more motivated in telling investors how they are integrating ESG factors into their business strategies and identifying new products, which puts sustainability at the top of their requirements.”

~Julian Ide, Head of distribution, Emea

The SFDR regulation falls under the European Union/United Nations 2030 Agenda for Sustainable Development. Its goal is to push around €1 trillion into green investments over the next decade. 

Irrespective of its aims, the SFDR creates a significant additional administrative load for asset managers. This will likely translate into firms having to adopt an increasingly strategic and informed approach when considering their overall sustainability.  This will determine whether and how the sustainability impact is measured. 

So, how ready is the European asset management industry for SFDR and ESG?

A recent report, based on a March-April 2021 survey of 21 European asset managers and 14 asset owners, including insurance companies and pension funds, looked in detail at the current state of readiness to comply with regulations and the respective changes and challenges that may be posed. 

The study was performed by the Global SaaS provider Clearwater Analytics and the global consulting firm Sionic in March-April 2021. 

See a summary of the results here

If your firm is having challenges keeping up with those new rules, it is time to take on a different approach.

See how Fundipedia can help. >> Request a free no-obligation demo today.