SFDR is an acronym for Sustainable Finance Disclosure Regulation. This is an EU regulation aimed at making it easier for investors to distinguish between funds’ ESG characteristics. Funds mindful of ESG issues are likely to adopt one of three different product categories:
Funds that integrate ESG risk considerations into their investment decision-making processes, or explain why sustainability risk is not relevant to theior chosen strategy, but would not qualify as Article 8 or Article 9 strategies.
Funds that promote social and/or environmental characteristics, and may invest in sustainable investments, but do not have sustainable investing as a core objective.
Funds that have a sustainable investment objective.
EU taxonomy specifies an additional set of disclosure requirements which establish whether an economic activity is environmentally sustainable. It identifies six objectives:
- Climate change mitigation
- Climate change adaptation
- The sustainable use and protection of water and marine resources
- The transition to a circular economy
- Pollution prevention and control
- The protection and restoration of biodiversity and ecosystems
You can read more about the EU Taxonomy here