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The Sustainable Finance Disclosure Regulation (SFDR) is a European Union (EU) regulation that came into effect on March 10, 2021.
The SFDR requires FMPs and FAs to classify and disclose the level of sustainability of their products using a set of pre-defined categories. These categories range from “dark green” for products that have a strong focus on sustainability to “brown” for those that have a negative impact on the environment and society.
To comply with the SFDR, businesses must take the following steps:
Identify whether they fall under the scope of the regulation based on their role in the financial market.
Classify their investment products according to the SFDR’s pre-defined categories and disclose the level of sustainability of these products to clients.
Disclose how they integrate ESG factors into their investment decision-making processes and how they measure the impact of their investments on sustainability.
Include the required disclosures in pre-contractual documents, on their website, and in regular reports to clients.
Regularly review and update their disclosures as required by the SFDR.