SFDR: What is article 6, 8 & 9? (2024)

FAQs

What is Article 8 and 9 SFDR? ›

These are: Article 9 funds: those funds that specifically have sustainable goals as their objective (for example investing in companies whose goal it is to reduce carbon emissions). Article 8 funds: those funds that promote E or S characteristics but do not have them as the overarching objective.

What is an Article 6 product under SFDR? Article 6 is the default classification for funds, and the one most appropriate for those with no ESG focus. This means funds that neither have a sustainable investment objective, nor do they embrace investment in assets with environmental or social benefits.

An Article 9 Fund under SFDR is defined as “a Fund that has sustainable investment as its objective or a reduction in carbon emissions as its objective.” There are a number of different requirements for Funds that promote a sustainable investment objective.

An Article 8 Fund under SFDR is defined as “a Fund which promotes, among other characteristics, environmental or social characteristics, or a combination of those characteristics, provided that the companies in which the investments are made follow good governance practices.”

Article 8 products promote environmental or social characteristics in the pursuit of other financial objectives. Article 9 products seek to make a positive impact on society or the environment through sustainable investment and have a non-financial objective at the core of their offering.

There were 6,862 funds classified as Art. 8 and 898 as Art. 9 as of the end of March. Flows into the most sustainability-focused funds also materialized despite strong outperformance from energy stocks, an industry that may be under-represented in many 'green' funds.

Article 6 covers funds which do not integrate any kind of sustainability into the investment process and could include stocks currently excluded by ESG funds such as tobacco companies or thermal coal producers.

SFDR product classifications fall under 3 categories: Article 8, Article 9 and 'Other. ' Article 8 and Article 9 products consider sustainability in a binding way. In addition, Article 8 products promote social and or environmental characteristics and Article 9 products have a sustainable objective.

The SFDR applies to financial market participants and financial advisors within the EU. This includes asset managers, institutional investors, insurance companies, and pension funds, among others.

The EU Taxonomy is the fundamental cornerstone of a suite of regulation to be launched by the EU to improve and standardise sustainability reporting. In particular, the Taxonomy will support the Sustainable Finance Disclosure Regulation (SFDR) and the upcoming Corporate Sustainability Reporting Directive (CSRD).

What is a dark green fund? ›

Article 9 (Dark Green) Fund – A fund with sustainable investment as its sole objective. Sustainable investment under the SFDR is defined as an investment that: Contributes to an environmental objective in assisting that objective. Contributes to tackling inequality or social conflict/issues.

Principal Adverse Impacts (PAIs) – Negative, material, or potentially material effects on sustainability factors that result from, worsen, or are directly related to investment choices or advice performed by a legal entity. Examples include GHG emissions and carbon footprint.

In March 2021, the European Union's Sustainable Finance Disclosure Regulation (SFDR) came into force. The SFDR is designed to help institutional asset owners and retail clients understand, compare, and monitor the sustainability characteristics of investment funds by standardizing sustainability disclosures.

Light Green Fund statement: “This financial product promotes environmental or social characteristics, but does not have as its objective a sustainable investment.” No significant harm to the sustainable investment objective.

ESG stands for environmental, social and governance. These are called pillars in ESG frameworks and represent the 3 main topic areas that companies are expected to report in. The goal of ESG is to capture all the non-financial risks and opportunities inherent to a company's day to day activities.

Article 9 protects your right to freedom of thought, belief and religion. It includes the right to change your religion or beliefs at any time. You also have the right to put your thoughts and beliefs into action.

ESG Investing (also known as “socially responsible investing,” “impact investing,” and “sustainable investing”) refers to investing which prioritizes optimal environmental, social, and governance (ESG) factors or outcomes.

Environmental, social, and governance (ESG) investing refers to a set of standards for a company's behavior used by socially conscious investors to screen potential investments. Environmental criteria consider how a company safeguards the environment, including corporate policies addressing climate change, for example.

UCITS stands for Undertakings for the Collective Investment in Transferable Securities. This refers to a regulatory framework that allows for the sale of cross-Europe mutual funds. UCITS funds are perceived as safe and well-regulated investments and are popular among many investors looking to invest across Europe.

Sustainability risk in the SFDR is defined as: “An environmental, social, or governance event, or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment arising from an adverse sustainability impact.”

What are pre contractual disclosures? ›

Pre-contractual disclosure means the sharing of material information about the franchise opportunity prior to the formalisation of the legal relationship. Its purpose is to ensure that the sales process is grounded in fact and that the parties can make a sober and objective assessment of the commercial opportunity.

While the SFDR does not make it compulsory to provide training to employees on the new disclosure regime, it is inevitable that relevant persons (for example, client-facing financial advisers and senior managers with ultimate responsibility for compliance with the SFDR) will require, and should be provided with, ...

The Sustainable Finance Disclosure Regulation (SFDR) is an EU initiative that requires financial market participants operating in the EU, to disclose the various sustainability risks associated with their investments and products, as well as to disclose their policies relating to these risks.

The Sustainable Finance Disclosure Regulation (SFDR) is a European regulation introduced to improve transparency in the market for sustainable investment products, to prevent greenwashing and to increase transparency around sustainability claims made by financial market participants.

No. SFDR does not apply to a non-EU AIFM which sells funds in the EU in response to reverse enquiry only.

SFDR Level 1 requires financial institutions within the EU—or those marketing to EU investors—to make principles-based disclosures on ESG-related activity. Firms must report not only on the sectors they invest in, but also on their portfolio companies. Further, SFDR disclosures are not limited to marketing materials.

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.

Hence, for investors NFRD is mostly relevant because it stipulates how investee companies report ESG data. SFDR, by contrast, most concerns financial market actors and ensures transparency about how these report on sustainability risks to their audiences (e.g., retail investors).

The EU taxonomy is a classification system, establishing a list of environmentally sustainable economic activities. It could play an important role helping the EU scale up sustainable investment and implement the European green deal.

‍Aligned activity/Alignment: an eligible economic activity that is making a substantial contribution to at least one of the climate and environmental objectives, while also doing no significant harm to the remaining objectives and meeting minimum standards on human rights and labour standards.

Are green funds green? ›

Green funds are mutual funds or other types of investment vehicles that promote socially and environmentally conscious policies and business practices. Green funds might invest in companies engaged in green transportation, alternative energy, and sustainable living.

The Principal Adverse Sustainability Indicators (“PASI”) detailed in the SFDR include a range of mandatory and voluntary indicators that FMPs are either required or may choose to report. In order to comply with the PASI requirements, FMPs will need to obtain ESG footprint data from their investee companies.

Green financing is to increase level of financial flows (from banking, micro-credit, insurance and investment) from the public, private and not-for-profit sectors to sustainable development priorities.

The Principal Adverse Impacts, or PAIs, are measured by an assortment of 14 mandatory corporate indicators, with two additional indicators for sovereigns and two real-estate specific indicators.

Principal Adverse Impact (PAI) is a key concept in the EU's Sustainable Finance Disclosure Regulation (SFDR), one of the EU Action Plan on Sustainable Finance's landmark regulations.

SFDR is the first regulation set by the EU which aims to reorientate capital flow towards sustainable finance. SFDR is inserted to provide transparency on sustainability within the financial market and thereby prevent greenwashing.

The EU Taxonomy aims to provide clarity to investors and protection against “greenwashing”. Once companies begin disclosing their alignment with the technical screening criteria, it will provide detailed information on the actual environmental impact and sustainable performance of economic activities.

The principles of sustainability are the foundations of what this concept represents. Therefore, sustainability is made up of three pillars: the economy, society, and the environment. These principles are also informally used as profit, people and planet.

What is ESG in simple words? ›

Environmental, social and governance (ESG) is a term used to represent an organization's corporate financial interests that focus mainly on sustainable and ethical impacts. Capital markets use ESG to evaluate organizations and determine future financial performance.

Spurious-free dynamic range (SFDR) is the strength ratio of the fundamental signal to the strongest spurious signal in the output. It is also defined as a measure used to specify analog-to-digital and digital-to-analog converters (ADCs and DACs, respectively) and radio receivers.

SFDR is a new regulation requiring financial service providers and owners of financial products to assess and disclose environmental, social, and governance (ESG) considerations publicly.

ESG stands for environmental, social and governance. These are called pillars in ESG frameworks and represent the 3 main topic areas that companies are expected to report in. The goal of ESG is to capture all the non-financial risks and opportunities inherent to a company's day to day activities.

The EU Taxonomy is the fundamental cornerstone of a suite of regulation to be launched by the EU to improve and standardise sustainability reporting. In particular, the Taxonomy will support the Sustainable Finance Disclosure Regulation (SFDR) and the upcoming Corporate Sustainability Reporting Directive (CSRD).

The meaning of SFDR

General use of DB, expressed as: SFDR=Ps-Pn, SFDR is the spurious-free dynamic range ( dB ), Ps is a useful signal power ( dBm ), Pn is the largest clutter signal power value ( dBm ).

Basically, sustainability in a business context encompasses these three dimensions: Environmental, Social and Governance. In other words, it is the framework for responsible, corporate action that reconciles social and environmental concerns in business operations.

The SFDR applies in full if your business meets the following categories: Financial market participant or financial advisor. Based in the EU. 500+ employees.

As it relates to ESG, and specifically to climate change and its effects, double materiality examines the potential impact of climate change on the financial health and outlook of a company. As an illustration, consider warming temperatures and rising sea levels and what these mean for the oil and gas industry.

What is environmental, social and governance (ESG)? Environmental, social and governance (ESG) is a term used to represent an organization's corporate financial interests that focus mainly on sustainable and ethical impacts. Capital markets use ESG to evaluate organizations and determine future financial performance.

What is EU Sfdr regulation? ›

The Sustainable Finance Disclosure Regulation (SFDR) is a European regulation introduced to improve transparency in the market for sustainable investment products, to prevent greenwashing and to increase transparency around sustainability claims made by financial market participants.

The principles of sustainability are the foundations of what this concept represents. Therefore, sustainability is made up of three pillars: the economy, society, and the environment. These principles are also informally used as profit, people and planet.

In its 2021 Impact Report, Tesla said that “current ESG evaluation methodologies” are “fundamentally flawed” because it lacks focus on the company's “real-world impact” on society and the environment.

ESG is based on standards set by lawmakers, investors, and ESG reporting organizations (e.g., GRI, TCFD, MSCI), whereas sustainability standards — while also set by standards groups like GHG Protocol — are more science-based and standardized.

Hence, for investors NFRD is mostly relevant because it stipulates how investee companies report ESG data. SFDR, by contrast, most concerns financial market actors and ensures transparency about how these report on sustainability risks to their audiences (e.g., retail investors).

European Commission adopts CSRD proposal

Taxonomy reporting would be mandatory for all companies within the scope of CSRD.

The six environmental objectives of the Taxonomy are: (1) climate change mitigation, (2) climate change adaptation, (3) sustainable use and protection of water and marine resources, (4) transition to a circular economy, (5) pollution prevention and control, and (6) protection and restoration of biodiversity and ...