Update on SFDR regulation and its application
The Regulation on transparency in sustainable finance entered into force on 10 March 2021. This is a cornerstone of the European Commission's ambitious 2018 action plan to direct financial flows towards more sustainable investments. Almost a year later, we take stock of how our partner management entities have implemented the SFDR regulation and have thus reaffirmed their commitments and their strong involvement in this matter.
Understanding Regulation
SFDR regulation is designed to play a key role in directing capital toward sustainable investments and financing the transition to climate neutrality. It lays down harmonized transparency rules on sustainability, as well as granularity in practices to be able to compare what is comparable. By imposing detailed transparency rules, SFDR regulation also seeks to combat green washing.
A sustainable investment is an investment in economic activities that contribute to an environmental or social objective to the extent that such investment does not prejudice another social or environmental objective and the firm in question follows good governance practices.
All funds must comply with Article 6, which lays the foundations for transparency. In order to go further and be eligible under Article 8, the fund must promote environmental or social characteristics. Finally, if it has a measurable objective of sustainable investment, it will fall within the scope of Article 9.
One year later - on the road to implementation
Crédit Mutuel Asset Management has been investing in socially responsible management for over 20 years through the creation of fund ranges, certification and integration of ESG criteria into its funds. It aims to ensure that most of its open funds meet the criteria of Article 8 or Article 9 of the EU SFDR Regulation.
BLI - Banque de Luxembourg Investments has strengthened the position of ESG in its investment solutions offering. A large number of funds in their range already meet the requirements of section 8 or 9 of SFDR regulation.
The commitments of our partner entities illustrate both the multiplicity of expressions of our Corporate Social and Environmental Responsibility and the consistency of the principles and values on which they are based. The classification provided by the SFDR regulation forms part of this dynamic and formalizes existing practices.
Evolving regulation
The detailed rules for implementing SFDR have been postponed several times by the European Commission and are now only expected to apply from 1 January 2023. This creates legal uncertainty about the application and interpretation of a number of SFDR disclosure rules. It is likely to evolve to ensure the EU's transition to a low carbon, more sustainable future. If successful, the SFDR could become the global benchmark for rules on sustainable finance. The availability of better ESG data should also help to improve the quality of investor publications.