SFDR

The Sustainable Finance Disclosure Regulation marks its second anniversary next month. Although it was quickly adopted as a sustainability label, its actual purpose was to provide a framework for communicating the extent to which sustainability plays a role within an investment fund. Adjusted rules that took effect in January 2023 caused a stir in the sustainable fund landscape.

The EU’s top financial markets authority on Thursday invited the European Commission to clarify new sustainability reporting requirements for European companies and to make its legislation for non-financial reporting standards more consistent with other pieces of EU legislation.

As the year ends, asset managers across Europe are anticipating the launch of even more stringent requirements for sustainable investments. At the same time, it’s increasingly becoming clear that EU regulation leaves ample room for investment managers to choose for themselves how they describe their ESG or impact investments.

The first of January marks a significant milestone in the European Union’s efforts to promote sustainable and responsible investing. The EU introduces the level 2 Regulatory Technical Standards for the Sustainable Finance Disclosure Regulation, known as SFDR. This requires sustainable investment funds to make a bigger effort to explain how they seek to achieve a positive impact.

Engaging with investors on sustainable investing requires answering two questions: How do sustainability factors impact returns? How do investment choices impact the world? “Good Practices in ESG Reporting” is the topic of this Benelux webinar hosted by Morningstar and Investment Officer.

The demand for ESG-compliant investments is growing, especially among professional investors. The urgency of climate change and the regulatory requirements are driving the development for responsible investing. 

To some spectators, many ESG funds engage in greenwashing, making little serious attempt to boost sustainability. To others, this movement is part of a woke agenda that unfairly bashes the energy industry. Yet, “not yet proven” is the conclusion of a new Luxembourg report about the effect of ESG investing on the global economy, and thus ultimately the environment and society. 

Luxembourg’s financial supervisor CSSF has made clear that it expects investment funds that commit to sustainability objectives will stick to these commitments. If a fund defines thresholds for specific ESG or sustainability investments, then it should consider these as a “binding commitments”.

Referring to a regulatory environment that is “still evolving”, Amundi, Europe’s largest asset management company, said it has taken a “conservative” step and reclassified almost all of its most sustainable investment funds, worth around 45 billion euro, to Article 8 from Article 9 under the EU’s sustainable finance disclosure regulation.

Europe’s asset management industry finds itself under a public magnifying glass after a team of international investigative journalists discovered that the most sustainable funds are still investing in polluting companies. Earlier warnings on possible reputation risks, also from specialists inside the sector, now echo loudly, but so does the observation that a lack of clarity in the current sustainability regulations poses significant challenges, both for the industry and investors.