Impact Policy Tracker Policy

Sustainable Finance Disclosure Regulation (SFDR)



The Sustainable Finance Disclosure Regulation (SFDR), published in 2019 and effective from March 2021, introduces mandatory sustainability-related disclosure requirements for financial market participants and advisers throughout the EU. It seeks to enhance transparency regarding how sustainability risks are integrated into investment decisions and how principal adverse impacts (PAIs) on sustainability factors are addressed.

The regulation applies broadly to asset managers, pension providers, insurers, and financial advisers, requiring both entity-level and product-level disclosures. It also establishes a classification system for financial products, distinguishing between those that promote environmental or social characteristics (Article 8) and those with sustainable investment as an objective (Article 9).

The SFDR is the first EU regulation to set binding ESG labelling standards and is key to ensuring consistent sustainability reporting across the financial sector, complementing disclosure requirements for companies and helping channel capital towards sustainable activities.

Highlights

  • Mandatory Sustainability Disclosure Requirements for Investors: To ensure the effective integration of ESG considerations into investors’ duties, mandatory sustainability-related disclosure requirements for the financial sector are key. While corporate sustainability reporting has been evolving, equivalent obligations for investors are equally necessary to improve transparency and accountability across the financial market. Regulations like the SFDR establish clear and enforceable rules that compel financial actors -not only companies- to disclose how sustainability risks and impacts are factored into their decision-making processes.

  • Building Upon SFDR - National Steps to Reinforce Compliance: While the SFDR establishes a standardised framework for sustainability disclosures across the EU, its implementation has varied among member states. Countries such as France and the Netherlands have introduced additional measures to enhance compliance and transparency. France's AMF Doctrine (Position-Recommendation 2020-03) imposes stricter guidelines on how investment funds communicate non-financial criteria, going beyond SFDR requirements. Meanwhile, the Netherlands' Authority for the Financial Markets (AFM) has intensified enforcement actions, including off-site inspections, to ensure adherence to SFDR standards.

Government’s Role:
Market Regulator


Country:
European Union

Policy Type:
Clarifying Investors’ Fiduciary Duties

Year: 2019

Responsible Institution:
European Parliament and Council of the European Union

Clarifying Investors’ Fiduciary Duties

What Can Governments Do to Clarify Investors’ Duties to Integrate Sustainability Considerations?

Fiduciary duty refers to the obligation of investors to act in the best interests of their beneficiaries, traditionally understood through the principles of loyalty and prudence. In recent years, the interpretation of this duty has evolved to reflect the growing recognition that Environmental, Social, and Governance (ESG) factorscan pose material risks and opportunities to long-term value creation. As a result, integrating financially material ESG considerations into investment decision-making is increasingly seen not as optional, but as a core component of fiduciary responsibility.

Under this expanded interpretation, fiduciaries are expected to integrate financially material ESG considerations into their investment decisions, engage in active ownership by promoting high ESG standards in their investee entities, and bolster the financial system’s stability and resilience. They must also disclose their investment approach, detailing how they incorporate beneficiaries’ preferences and assess the associated risks and opportunities.

In this context, governments have a critical role to play, since the definition of investors’ duties has profound implications across the entire investment chain. Through regulatory frameworks, governments can clarify that fiduciary duty encompasses the consideration of climate and social-related risks, and establish mandatory disclosure requirements to ensure consistent and transparent ESG practices across the financial sector. While voluntary or 'comply or explain' approaches represent progress, systemic change requires moving towards legally binding obligations. This means not only enabling investors to pursue sustainability objectives without conflicting with their fiduciary responsibilities, but also actively requiring them to do so in order to support a more resilient and accountable financial system.

For more information on the modern concept of fiduciary duty -and how the integration of ESG factors has been clarified or mandated in different countries- visit A Legal Framework for Impact (2021) and PRI’s report Fiduciary Duty in the 21st Century (2019)