- Consideration of sustainability risks that are risks of loss of value of underlying assets due to environmental or social events;
- Sustainable investments in economic activities that contribute to environmental or social objectives. They include investments in EU-taxonomy eligible economic activities;
- Consideration of Principal Adverse Impacts (PAI) on sustainability factors, which are the negative effects on environmental, social and employee matters as well as respect for human rights, anti-corruption and anti-bribery resulting from an investment decision.
Scope of SFDR – Sustainable Finance Disclosure Regulation
Financial products and product manufacturers in scope of SFDR
As of 10 March 2021, SFDR applies to the financial products listed below and extends to their product manufacturers and their financial advisers who are located in the EU:
- Portfolios managed by credit institutions or investment firms
- Alternative investment funds (AIFs) and UCITS
- Insurance-based investment products (IBIPs)
- Pension products, workplace pension products regulated under the IORP directive and PEPP
Disclosure obligations of SFDR
Disclosure obligations that must be supplemented and further specified by Regulatory Technical Standards (RTS) (such as the statement on consideration of PAI indicators for large product manufacturers, pre-contractual and periodic information for financial products “promoting ESG characteristics” or “investing in sustainable investments”) will only apply the principle-based requirements from 10 March 2021 until 1 January 2023, which corresponds to the application date specified in these RTS.
As of 10 March 2021, all in-scope financial products have to disclose in pre-contractual documents how they consider sustainability risks and the expected impact on the return of the product. Their product manufacturers and advisers have to disclose information on the integration of sustainability risks in the investment decision-making process or the investment advice process as well as information on how remuneration policies are consistent with the integration of sustainability risks.
Financial products “promoting ESG characteristics” or “investing in sustainable investments” must disclose in pre-contractual documents detailed information on those characteristics or investment objectives and associated sustainability indicators and, in periodic reports, information on how they have been attained.
Consideration of Principal Adverse Impacts under SFDR
The ways in which Principal Adverse Impacts (PAI) on environmental and social matters resulting from an investment decision are considered must be disclosed as follows:
- By financial market participants, on a “comply or explain” basis from 10 March 2021
- By entities subject to the Non-Financial information Reporting Directive(1) (NFRD), on a mandatory basis at entity level from 30 June 2021
Disclosure including PAI indicators will be done in compliance with the RTS from 30 June 2023 for financial market participants and in the periodic reports of financial products from 30 December 2022.