Sustainable Finance Disclosure Regulation (SFDR)

The Sustainable Finance Disclosure Regulation (SFDR) is a central part of the EU's work on sustainable finance and aims to increase transparency around how sustainability-related risks and factors are integrated into investment decisions and financial products. The regulation currently affects many financial market participants and financial advisers and imposes stricter requirements on structure, data quality, processes, and sustainability-related disclosures.

We help companies and financial institutions interpret and translate SFDR requirements into practical, workable processes and reporting structures. The work is tailored to the organisation's circumstances, product range, and level of ambition, and can range from high-level regulatory analysis to the development of disclosures, processes, methodology, and internal governance structures.

In our engagements, we analyse how sustainability risks are integrated into investment processes and how the organisation addresses Principal Adverse Impacts (PAI), the main adverse effects on sustainability factors. This work often includes support around data collection, indicators, choice of methodology, transparency, and documentation, as well as developing processes for monitoring and reporting at both entity and product level.

We also support the classification and structuring of financial products under SFDR Articles 6, 8, and 9, as well as the development of related sustainability disclosures. For many organisations, the work centres on ensuring that sustainability-related claims, investment strategies, and reporting are clear, consistent, and well-substantiated in relation to the regulation's requirements and market expectations.

For Article 8 and Article 9 products, we work on analyses related to sustainability indicators, investment processes, taxonomy-related information, and monitoring of sustainability-related characteristics or objectives. The focus is often on creating robust processes and a clear link between the sustainability profile of investments, the underlying data, and external reporting.

We also help organisations manage growing demands for transparency and reduce the risk of greenwashing in sustainable finance. As SFDR has, in practice, come to function as a form of sustainability classification, we see that many organisations need to develop clearer methodology, governance, and documentation around how sustainability-related characteristics and objectives are defined, monitored, and communicated.

At the same time, the regulation continues to evolve. The European Commission's ongoing "SFDR 2.0" review is expected to affect both disclosure requirements and the categorisation of sustainable financial products going forward. For many organisations, this creates a need to build flexible, long-term processes that can adapt as regulatory requirements and market expectations change.

Common challenges in working with SFDR

• Interpreting and applying regulatory requirements
  SFDR involve complex disclosure requirements, and many organisations find it challenging to interpret and apply the regulation in a consistent and practically workable way.
• Managing ESG data and PAI indicators
  Working with SFDR requires large volumes of ESG data, and many organisations face challenges related to data quality, availability, and methodology.
• Integrating sustainability risks into investment processes 
  Integrating sustainability risks and ESG factors into investment analysis and decision-making processes often requires new ways of working, processes, and governance structures.
• Managing greenwashing risks 
  Growing demands for transparency and sustainability communication mean sustainability-related claims and classifications need to be well-substantiated and regulatorily sound.
• Evolving regulations and market expectations 
  Developments in SFDR and the broader sustainable finance space are moving quickly, requiring organisations to continuously adapt their processes, reporting, and governance.