Implementing the SFDR

Laura Houët

CMS: Co-Head of ESG

What is the Sustainable Finance Disclosure Regulation (SFDR)? Join Laura Houët as she explains what the SFDR is and key challenges for its implementation.

Regulation and Initiatives

What is the Sustainable Finance Disclosure Regulation (SFDR)? Join Laura Houët as she explains what the SFDR is and key challenges for its implementation.

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Implementing the SFDR

17 mins 16 secs

Key learning objectives:

Understand the purpose and scope of the EU’s SFDR
Identify key challenges for implementing SFDR
Outline how the European Commission and the European Supervisory Authorities are proposing to change the SFDR

Overview:

The European Union's Sustainable Finance Disclosure Regulation (SFDR) is a key component of the EU's sustainable finance agenda, designed to enhance transparency and combat greenwashing. Despite its broad scope, covering various financial entities and products, SFDR faces challenges due to ambiguous requirements and data reliability issues. Proposed changes aim to refine classification systems, improve data quality, and ease disclosure processes.

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Summary

What is the purpose of the Sustainable Finance Disclosure Regulation (SFDR)?

The SFDR aims to increase transparency, redirect capital towards a more sustainable economy, and combat greenwashing by establishing standardized sustainability disclosure requirements for financial institutions and their products.

To whom does SFDR apply?

SFDR applies to financial market participants, including banks, insurance companies, pension funds, investment firms, asset managers, financial advisers, and a wide range of financial products like UCITS funds, alternative investment funds, and insurance-based investment products.

What are Article 8 and Article 9 funds under SFDR?

Article 8 funds promote environmental and/or social characteristics, while Article 9 funds have sustainable investment as their objective. These articles have been misunderstood as "badges" of sustainability, leading to subjectivity and interpretation issues.

What are the main challenges faced by SFDR implementation?

Challenges include the interpretation of sustainability requirements, extraterritorial implications for non-EU firms, and issues with data availability and quality. These challenges have resulted in a lack of comparability and consistency, as well as potential greenwashing.

What changes are being proposed for SFDR?

Proposed changes include overhauling the classification of sustainable products, improving data quality, refining definitions of "sustainable investment," making disclosures more manageable, and addressing challenges faced by smaller firms, including potential exemptions.

What is the future outlook for SFDR?

The future of SFDR involves ongoing consultations and proposed changes by the European Commission and European Supervisory Authorities (ESAs) to make the regulation more effective and manageable. The timeline for these changes remains uncertain, with gradual implementation expected.

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Laura Houët

Laura Houët, Co-Head of ESG at CMS, has over 16 years of experience in the asset management industry. She advises international fund houses on sustainable investment strategies and governance, helping them navigate sustainability-related regulations like SFDR, TCFD, EU Taxonomy, CSRD, and UK's SDRs. She also provides strategic governance and internal preparation for climate transition. Laura serves on the CMS sustainability board committee and various industry bodies, contributing to the development of sustainable practices. She is a frequent speaker on sustainable investment issues.

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