SFDR (The Sustainable Finance Disclosure Regulation) tackles greenwashing in finance by requiring fund managers to classify funds based on sustainability, with Level 1 implemented in 2021 and Level 2 requirements redrafted and clarified by the EC for enforcement in 2023, focusing on Article 8 and 9 classifications which require investment policies, goals, or targets to promote environmental/social characteristics and Article 8+ funds to contribute to environmental/social objectives, comply with "do no significant harm" principle, and adhere to "good governance".
SFDR aims to tackle greenwashing in the financial sector by requiring fund managers to classify their funds based on their sustainability performance. The regulation has two levels, with Level 1 implemented in March 2021 and Level 2 to be enforced from January 2023. The Level 2 requirements, known as Regulatory Technical Standards (RTS), have been redrafted and clarified with Q&As by the European Commission.
This blog focuses on the requirements for Article 8 and Article 9 classifications, which are additional to the minimum requirements of Article 6. Article 8 classification focuses on the environmental/social characteristics promoted by the fund, which must be expressed in investment policies, goals, or targets. The use of the term “promotion” has been clarified by the EC to encompass claims, information, reports, disclosures, or impressions that portfolio assets consider the prescribed environmental/social characteristics. The concept of Article 8+ funds was developed by the financial sector to address the lack of stringent requirements for Article 8 funds. The requirements for Article 8+ funds include contribution to an environmental or social objective, compliance with the “do no significant harm” principle, and adherence to “good governance”.
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