SFDR

The Sustainable Finance Disclosure Regulation (SFDR) sets transparency rules for how investment firms and advisers in the EU describe the sustainability characteristics of their products. The goal is to reduce greenwashing and give investors comparable information.

SFDR operates at two levels. At the entity level, firms disclose their policies on integrating sustainability risks and, where applicable, how they consider principal adverse impacts (PAI) on sustainability factors. At the product level, firms disclose sustainability-related information for each fund or product.

Products are commonly discussed in terms of the regulation's articles: Article 6 products integrate sustainability risk without making it a focus, Article 8 products promote environmental or social characteristics, and Article 9 products have sustainable investment as their objective. These article labels became de facto market categories, even though SFDR was designed as a disclosure regime rather than a labelling scheme - a tension the EU has consulted on.

SFDR underpins much of the sustainable finance and ESG-investing job market in Europe, alongside the EU Taxonomy that defines what counts as environmentally sustainable.