With the next disclosure deadline coming up in June 2023, we take a closer look at SFDR and what it means for your business.
Working towards a more sustainable future
ESG (Environmental, Social, Governance) has become a critical part of business operations worldwide, with the Paris Agreement setting ambitious targets for businesses, cities, regions and investors to achieve Net Zero carbon emissions by 2050.
ESG investing has become one of the fastest-growing investment strategies around the world with climate-related disasters, social unease, and a global pandemic all highlighting the very real need for a strategic ESG-led approach to sustainable business.
Organisations are increasingly adopting strategies to monitor their performance against key ESG metrics to help inform their business decision making processes and shape their strategies going forward. With investors increasingly favouring companies with strong, transparent ESG strategies, there has also been a growing demand for tighter regulations across the finance industry within the EU.
The European Commission has taken steps to do just that, creating tighter regulations through standardisation of ESG terminology, reporting and transparency with the development of the Sustainable Finance Disclosure Regulation (SFDR)
What is SFDR and who is it for?
The Sustainable Finance Disclosure Regulation (SFDR) is a European regulation that was formed in 2018, arising from the European Commission’s Action Plan on Sustainable Finance.
SFDR signals a landmark change in regulation for ESG investing in Europe, with the EU keen to standardise enforceable regulations that align with wider sustainability requirements.
The SFDR regulation applies to FMPs such as asset managers, insurance companies, pension funds, banks, investment firms, venture capital funds, and credit institutions offering portfolio management with over 500 employees. And it’s not just those located in the EU that are impacted – anyone doing business with or investing in Europe will be affected. And in the future SFDR may even lead to the standardisation of ESG disclosure requirements outside of the EU.
What is SFDR trying to achieve?
SFDR was created to make sure EU investors have the disclosures they need to make informed investment decisions that align with their sustainability goals. By requiring organisations to fully disclose their ESG strategies and reporting to potential investors, it aims to improve transparency and accountability and eliminate greenwashing in financial products and services. The ultimate goal of SFDR is to allow investors greater visibility of organisations and their practices, allowing them to steer investment in a direction that will see an increase in funds going into sustainability-focused businesses.
Why and when?
SFDR was first implemented in March 2021, with disclosure windows following in 2022 and 2023. The next window closes in June 2023, meaning anyone in or investing in the EU will need to report on their ESG data from 2022 by June 2023.
The regulation applies to FMPs participating in the EU financial market and what you need to disclose will be different depending on what you do – for example, it will differ for asset managers, insurance companies, pension funds, banks or investment firms.
As with the implementation of ESG strategies, the changes in organisational policy, documentation and administration to adhere to SFDR can seem daunting but the benefits are widespread; it rewards sustainability-focused businesses and aims to prevent competitors in the financial industry from greenwashing.
How can Turnkey help?
With a successful track record working with a vast array of investors and their diversified portfolios, we are uniquely placed to bring value to your data collection and reporting process. Our tailor-made platform can help you streamline your SFDR reporting, helping you hit the deadline and comply with regulations.
Utilising our experience of working closely with multiple private equity funds and institutional investors, we have created an SFDR solution that makes your data collection and reporting process easy and beneficial both for investors and investee companies.
Our solution will help digitise your SFDR data collection into one central location whilst tracking year-on-year performance and providing meaningful in-depth analytics. What’s more, to ensure you get the most value from our ESG cloud solutions, we provide expert customer support and ESG advisory services, specifically in relation to SFDR as well as numerous other areas.