What is the SFDR?
As a key part of the EU’s sustainable development policy agenda, the SFDR is intended to increase transparency on sustainability among financial institutions and market participants. The regulation consists of disclosure requirements on the organisational, service and product levels to standardise sustainability performance, hence preventing “greenwashing” and enabling comparisons for sustainable investment decisions.
Who does the SFDR apply to?
The SFDR mainly applies to financial institutions (banks, insurers, asset managers and investment firms) operating within the EU. Non-EU entities will be affected indirectly through EU subsidiaries, provision of services in the EU and market pressure.
The disclosure requirements are considered at the level of the entity and of the product.
Entity-level disclosure
Requirements to disclose information on their corporate website apply to financial market participants and financial advisers, in the context of the proposition of, among others, portfolio management and investment advice services, insurance-based investment products, pension products as well as Alternative Investment Fund and UCITS products:
Sustainability risk policy (integration of sustainability risks into the investment decision-making process)
Principal Adverse Sustainability Impact (adverse effects on sustainability of the investment decision and/or in the investment advice)
Consistent alignment of the remuneration policies with the sustainability objectives
Product-level disclosure
Under the SFDR, financial market participants and financial advisers are required to disclose product information related to sustainability for both environmental, social, and governance (ESG)-related products and non-ESG products. The regulation requires entities to classify the products or advice they offer into one of the three following categories: mainstream products, products promoting environmental or social characteristics or products with sustainable investment objectives.
Product-level disclosure requirements affect pre-contractual disclosure (client information, brochure, etc), product website disclosure, and periodic product reports.
Some of these disclosures are also required under the EU Taxonomy Regulation.
The time to prepare for the SFDR is now: PwC can help
With deadlines fast approaching, financial organisations need to prepare now. Our Financial Services specialists can assist by performing SFDR impact and regulatory gap analyses to help you develop and implement the SFDR strategy that’s best suited to your company’s needs.
Have questions or would like to discuss how to best prepare your organisation for the SFDR? Please get in touch.
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