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INSIGHTS – HEADERS – Introducing New SFDR Filters In Trustnet 1820X375

Introducing new SFDR filters in Trustnet

Transparent ESG investing and reporting is now a major consideration for fund selectors in the investment industry.

With increased scrutiny on what should be labelled ‘ESG’, fund manufacturers are now under more pressure to provide transparent fund documentation to substantiate sustainably focused funds. For example, the Sustainable Finance Disclosure Regulation (SFDR) was introduced to increase transparency in the market and has affected the way that fund managers conduct themselves when it comes to ESG fund disclosures in Europe.

SFDR has become a de facto classification system, with funds classifying themselves as Article 6, 8, or 9 depending on their level of sustainability:

  • Article 6 funds are traditional funds, which may or may not take sustainability risks into account in the investment process.
  • Article 8 are those funds where they are marketed as ESG but don’t have to invest in only ESG/sustainable companies.
  • Article 9 are funds that must have a sustainable objective and must only invest in businesses deemed to be sustainable.

SFDR Level 2, introduced on 1 January 2023, delivered prescribed disclosure templates for Article 8 and 9 funds, including the minimum percentage to be invested with an environmental or a social objective. This increased regulatory scrutiny prompted some fund managers to reclassify many Article 9 funds as Article 8 in fear of regulatory action.

This has brought to the fore, the risk of ‘Greenwashing’, where fund managers intentionally or unintentionally exaggerate a funds' ESG commitments and credentials.

With these evolving and ever-changing regulations, and the multitude of ESG ratings and definitions in the market, it can be a challenge for fund selectors to assess investment suitability for sustainable funds.

Supporting fund selectors

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