Dive into SFDR: Navigating the green finance wave

Dive into SFDR: Navigating the green finance wave

Nov 28, 2023


Greg Taylor

The financial landscape in Europe has turned a shade greener since March 2021, thanks to the Sustainable Finance Disclosure Regulation (SFDR). If you're looking to align with this, here's your friendly guide to understanding and embracing SFDR.

What is SFDR anyway?

The SFDR is a European Union regulation that came into play to steer the finance sector towards sustainability. In simple terms, it's about making sure that financial players are clear about how green their investments are.

Who is in scope to do it?

The scope of the SFDR encompasses a wide range of financial market participants (FMPs) and financial advisers (FAs) who operate or advertise their products within the European Union. Examples of entities falling within the scope of SFDR are Asset Managers, Venture Capital Funds, EU Banks, Insurance Providers, Pension Fund Providers, Financial Advisors, and Commercial Banks – all of which are required to disclose sustainability factors and often Principle Adverse Impact data, or ‘PAIs’ as they’re commonly known.

The core of SFDR: Transparency

SFDR aims at enhancing transparency in the financial sector by mandating the disclosure of sustainability information both at entity-level and product-level. Financial institutions are required to disclose details about their overall sustainability practices, and also provide information about each financial product marketed in the EU. This translates into different types of disclosure requirements: pre-contractual disclosures, website disclosures, and periodic disclosures.

The famous Article 8 and 9

Within the SFDR, Article 8 and 9 have become somewhat of celebrities. Here’s a quick intro:

  • Article 8 Funds: Known as "light green" funds, they promote environmental or social characteristics. They're for those who want to dip their toes into ESG integration and promotion, without having to commit to any proportion of sustainable investments.

  • Article 8+ Funds: Known as "medium green" funds, and considered a level-up from Article 8, since their strategy adds the commitment of sustainable investments. This turns into the tendency of more sophisticated strategies, such as the integration of EU Taxonomy assessment.

  • Article 9 Funds: The "dark green" funds are for those diving head-first into sustainability and, often, also impact investing. These funds have sustainable investment as a core objective.

Step 1: Select your target classification

  • Assessment: Start by assessing your current operations and investments against the SFDR requirements. Know where you stand in terms of compliance for your organization and each of your financial products.

Step 2: Set a clear strategy

  • Ambition level: Set the ambition level for each of your financial products to clarify the next steps needed to achieve the sustainability goals.

  • Goal Setting: Set clear sustainability goals and targets in line with your financial product ambition, depending on how deep you want to dive into the green finance pool.

Step 3: Communicate and collaborate

  • Team Alignment: Make sure your team is on board and well-versed with the SFDR and your sustainability goals.

  • Process Setup: Align with your internal and external stakeholders to streamline the processes involving the reporting of sustainability information. Set timelines, identify responsibilities and start allocating resources for a smooth reporting workstream.

Step 4: Monitor and report

  • Track Progress: Establish mechanisms to monitor your progress towards achieving your sustainability goals and tracking ESG metrics.

  • Transparent Reporting: Report your sustainability results achievements in a transparent and accessible manner.

Step 5: Keep learning and adapting

  • Stay Informed: The regulatory landscape is evolving. Stay updated on the latest developments and be ready to adapt your strategies

  • Stay Tuned: The EU is currently running a consultation (until 15th Dec 2023) seeking inputs from various stakeholders (financial practitioners, professional investors, public authorities etc.) to assess the current state of SFDR requirements, with the aim to identify any shortcomings and explore options for improving reporting practices.


The SFDR is more than just a regulatory regime; it’s a call to action for the financial sector to play a part in the global sustainability agenda. By understanding its core principles and taking proactive steps, you’re not just aligning with a regulation, but contributing to a greener and more sustainable financial ecosystem. So, gear up, set clear sustainability targets, and make transparency your ally in this green finance journey!

Simplify ESG
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Simplify ESG
Automate Compliance

Simplify ESG
Automate Compliance