SFDR Compliance: Sustainable Finance Disclosure Regulation
Regulation (EU) 2019/2088 has applied since 10 March 2021, with detailed Level 2 technical standards effective 1 January 2023. SFDR compels asset-managers and advisers to disclose how sustainability risks and principal adverse impacts (PAIs) affect their investment decisions and products.
What is SFDR ?
The Sustainable Finance Disclosure Regulation (SFDR) creates a single transparency rule-set for EU financial-market participants.Firms must publish an entity-level PAI statement covering at least 14 ESG indicators, classify every product as Article 6, 8 or 9, and provide pre-contractual, website and periodic ESG disclosures using European Supervisory Authority templates.Level 2 RTS, in force 1 Jan 2023, mandate granular data on greenhouse-gas emissions, social violations and governance safeguards, making SFDR a cornerstone of the EU’s sustainable-finance agenda.
Key Features of SFDR
The Sustainable Finance Disclosure Regulation (SFDR) introduces pivotal features aimed at fostering sustainability in financial activities:
Transparency in Sustainability Risks
The Sustainable Finance Disclosure Regulation (SFDR) mandates that financial market participants and financial advisers disclose how sustainability risks are integrated into their investment decisions. This feature aims to enhance transparency of financial products.
Adverse Sustainability Impact Disclosures
SFDR requires entities to disclose if, and how, they consider the principal adverse impacts (PAIs) of investment decisions on sustainability factors. This includes aspects such as environmental damage, social injustice, and governance shortcomings.
Integration of ESG Factors into Investment Decisions
A core component of SFDR is the requirement for the integration of Environmental, Social, and Governance (ESG) factors into the decision-making processes of investment firms. This aims to shift the focus from purely financial considerations to also include how investments impact ESG factors
Product-level and Entity-level Disclosures
SFDR distinguishes between product-level and entity-level disclosures. At the product level, financial market participants must disclose how sustainability risks are integrated into investment decisions and the expected impact on returns. At the entity level, they must describe their overall approach to integrating sustainability risks across their investment products
Implications of SFDR
Asset-managers must collect issuer ESG data, map PAIs, classify funds, update marketing materials and file RTS templates ahead of the next periodic report. Expect supervisory spot-checks on Article 8/9 claims and greenwashing sanctions under ESMA’s May 2025 naming-rules guidance.
.png)
Grand: Enhancing SFDR Compliance
-p-1080.png)
-p-1080.png)
-p-1080.png)
-p-1080.png)
.png)
How Grand Helps
Each component within Grand.io's GRC software suite is crucial for achieving full compliance with the SFDR regulation, covering key areas such as sustainability risk assessments, adverse sustainability impact reporting, ESG factor integration into investment decisions, and ongoing alignment with regulatory updates.
Frequently Asked Questions
Asset-managers, AIFMs, UCITS firms, pension providers, MiFID investment advisers and insurance distributors serving EU clients.
Article 6 funds make no ESG claims; Article 8 “promote” E/S characteristics; Article 9 have sustainable-investment objectives.
An annual disclosure of how investments harm sustainability factors (e.g., emissions, biodiversity, social breaches) plus remediation actions.
