How to ensure that an investment product described as 'Sustainable' does indeed deliver "What’s written on the tin", to paraphrase the British expression?
And when the content does measure up to the description, how can we avoid confusion for investors faced with the plethora of designations applied to sustainable products? Having begun the tricky challenge of defining a sustainable activity (see our article on the European Taxonomy), the European Commission has turned to the equally challenging topic of requirements for labelling sustainable investment products. The result is this month's "Sustainable Finance Disclosure Regulation", or SFDR.
As the name implies, SFDR is about disclosure, in terms of both communication and transparency. In contrast to the approach taken in the European Taxonomy regulation, SFDR does not prescribe what features sustainable financial products should include. The likely benefit of SFDR is that even mere disclosures can create incentives for financial products to evolve in a certain direction, if companies are required to communicate certain elements. We expect SFDR will provide an incentive to boost sustainability-related credentials.
Watch David Czupryna's video.