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Article (11/252)
Sustainable Finance Disclosure Regulation (SFDR) – regulation memo
Sustainable Finance Disclosure Regulation (SFDR) – regulation memo

Sustainable Finance Disclosure Regulation (SFDR) – regulation memo


As part of the European Commission’s Action Plan on financing sustainable growth of March 2018 (the “Action Plan”), Regulation (EU) 2019/2088 on sustainable Finance Disclosure regulation (SFDR) aims to  provide greater transparency on the degree of sustainability of  financial  products  to actually channel private investment towards sustainable investments while preventing green washing.  Its phase-in implementation will start from 10 March 2021. Some of the EU taxonomy requirements will also help to achieve this purpose by requiring those financial products to disclose to what extent they invest in environmentally sustainable economic activities.

About SFDR  

The SFDR defines and introduces transparency requirements on financial products’ characteristics that can be used and compared to assess their degree of sustainability:

  • 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.


The regulation applies to financial products listed below and extends to their product manufacturers and their financial advisers who are located in the EU:

  • Portfolio managed by credit institutions or investment firms
  • Alternative investment funds (AIFs) and UCITs
  • Insurance-based investment products (IBIPs)
  • Pension products, Workplace pensions products regulated under the IORP directive and PEPP

From 10 March 2021, all in-scope financial product will have to disclose in pre-contractual documents information on whether and how they consider sustainability risks. Their product manufacturers and advisers will 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” will have to disclose in pre-contractual documents and periodic reports information to detail those characteristics or investment objectives and how they have been attained. 

Large product manufacturers will have to disclose, at entity level, their due diligences and engagement policies on consideration of PAI on sustainability factor and, from 1 January 2023, for each product they manage.

Industry implications

Financial products that do not claim to achieve any degree of sustainability may face marketing difficulties as they will have to clearly disclose in their pre-contractual documents that they do not consider sustainability risks, PAI on sustainability factors or EU taxonomy criteria that define environmentally sustainable economic activities. Moreover, under MIFID II amendments to be adopted by the end of 2020, those products would no longer be advised to clients that have expressed ESG preferences.

The difficulty of implementation for financial products that consider sustainability issues and for their manufacturers will depend on the availability of the ESG data that will be required by the Technical Regulatory Standards (RTS) supplementing the Regulation and the obligation for investee companies to make these ESG data publicly available.

The European Commission (EC) has agreed to postpone the entry into application of the RTS to be finalised by the end of January 2021 until a date still to be confirmed. Nevertheless, expertise in the ESG area and costly access to ESG data will be needed from 10 March 2021 to meet the principle-based requirements of the Regulation while not publishing misleading information.

BNP Paribas Securities Services’ view

The main issue raised by product manufacturers is that they are required to access ESG data that are not made publicly available by investee companies. This issue could be solved by the adoption of a legislative proposal in Q3 2021 to create a European Single Access Point that will provide EU-wide access to all relevant information (including on sustainability) disclosed to the public by companies as put forward by the EC in its new Capital Markets Union (CMU) action plan.

It is important to note that all information would be provided in comparable digital formats.

Key dates

29 December 2019 – Entry into force

31 January 2021 – Finalisation of ESAs RTS on  PAI  indicators to be disclosed by product manufacturers with + 500 employees and pre-contractual and periodic information to be disclosed by financial products  promoting ESG factors or investing in sustainable investments

10 March 2021 –  First application date - pre-contractual disclosures on the degree of sustainability of financial products

30 June 2021 – Disclosure by product manufacturers (500+ employees) of their policies on consideration of PAI on sustainability factors  

 1 January 2022 – Disclosure in periodic documents by financial products on the attainment of their ESG characteristics or objectives in sustainable investments     

1 January 2023 – Disclosure of consideration of adverse sustainability impacts financial products

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