New updates on SFDR: Key Takeaways & Emerging Trends to Watch

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Key Takeaways

On 25 March 2022, the three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have updated their joint supervisory statement on the application of the Sustainable Finance Disclosure Regulation (SFDR). This includes a new timeline, expectations about the explicit quantification of the product disclosures under Article 5 and 6 of the Taxonomy Regulation (TR), and the use of estimates.

  • The draft RTS submitted to the European Commission on 4 February and 22 October 2021 can be used as a reference for the purposes of applying the provisions of Articles 2a, 4, 8, 9, 10 and 11 of the SFDR and Article 5 and 6 of the TR in the interim period.

  • SFDR disclosures in accordance to the Draft RTS provisions start from Jan 1,2023, with 2022 as the first reference period. Matched timeline with investee companies’ reporting timeline by CSRD (Corporate Sustainability Reporting Directive).

  • Explicit quantification of the product-level disclosures is needed, through the numerical disclosure of the percentage, of the extent to which investments underlying the financial product are taxonomy-aligned.

  • Until the application of the RTS, the numerical disclosure referred above could be accompanied by a qualitative clarification explaining how the financial product addresses the determination of the proportion of taxonomy-aligned investments of the financial product, for example by identifying the sources of information for that determination.

  • Equivalent information on taxonomy-alignment obtained directly from investee companies or from third party providers is allowed, but NOT estimations.

  • Assets in Article 8 and Article 9 funds reached EUR 4.05 trillion at the end of December 2021, representing 42.4% of all funds sold in the EU. In the fourth quarter (2021), Article 8 and Article 9 funds captured 64% of EU fund inflows, at EUR 81.4 billion. (Morningstar)

  • UCITS with an environmental, social and governance (ESG) strategy (including equity, bond and mixed funds) outperformed their non-ESG peers, and were also overall cheaper. (ESMA)

  • Growing scrutiny of ESG data and ESG data vendors: as ESG data and/or ratings are directly relevant for the application of the SFDR. (Eurosif)



Emerging trends

According to research conducted by Morningstar published on February 4, 2022, assets in Article 8 and Article 9 funds reached EUR 4.05 trillion at the end of December 2021, representing 42.4% of all funds sold in the EU. In the fourth quarter (2021), Article 8 and Article 9 funds captured 64% of EU fund inflows, at EUR 81.4 billion. As of 31 Dec 2021, based on SFDR data collected from prospectuses on 91% of funds available for sale in the EU, excluding money market funds, funds of funds, and feeder funds, we found that 5,862 (25.2%) were classified as Article 8, while 797 (3.4%) were classified as Article 9. The overall number of Article 8 and Article 9 funds increased by 16% over the fourth quarter. Combined, the two categories represented close to one fourth (28.6%) of the overall EU fund universe at the end of December, up from 24.5% at the end of September 2021.


The European Securities and Markets Authority (ESMA), the EU securities regulator, published its fourth annual statistical report on the cost and performance of European Union (EU) retail investment products on April 5, 2022. A new finding this year is that UCITS with an environmental, social and governance (ESG) strategy (including equity, bond and mixed funds) outperformed their non- ESG peers, and were also overall cheaper. ESG outperformed non-ESG equity UCITS mostly due to sectoral factors, and were slightly cheaper.


ESG equity, bond and mixed funds were overall cheaper than non-ESG peers, while their performance reflected the strong performance of specific sectors since the COVID-19 crisis. Within the ESG fund category, impact funds performed better than other ESG strategies and funds with sustainable investment as objective performed better in net terms, after having included costs, than those promoting environmental or social characteristics despite slightly higher costs.


ESG data and/or ratings are directly relevant for the application of the SFDR. According to Eurosif, a growing number of financial products in scope of the SFDR; (i) promoting environmental and/or social characteristics (SFDR Article 8 products) or, (ii) pursuing sustainable investment as their objective (SFDR Article 9 products) are using ESG ratings for various purposes. Some Article 8 products employ ESG ratings to substantiate claims as to, or to convey the existence of, enviornmental or social characteristics. In the case of Article 9 products, ESG ratings may be used to identify companies and their securities that would be elibigle as sustainable investment as defined by Article 2(17). Both types of products may also be using ESG benchmarks that may be constructed on the basis of the ESG ratings of constituents. Therefore, more transparency on ratings’ methodologies, objectives and sourcing of data is important to ensure a more effective application of SFDR.


Investors will need to have confidence that they can rely on accurate comparisons between different companies and financial products’ level of Taxonomy-alignment, the proportion of sustainable investments as well as the measurement of Principal Adverse Impacts (PAIs) to make informed investment decisions under SFDR and the Taxonomy. Therefore, it may be necessary to enhance comparability of data points under these regulations through more granular and harmonised methodologies there. (Victor van Hoorn, Executive Director of Eurosif A.I.S.B.L.)

The EU Commission has also launched the "Targeted consultation on the functioning of the ESG ratings market in the European Union and on the consideration of ESG factors in credit ratings" from April 04, 2022 to June 06, 2022. This consultation aims to help the Commission gain a better insight on the functioning of the market for ESG ratings, as well as better understand how credit rating agencies (CRAs) incorporate ESG risks in their creditworthiness assessment.


Furthermore, The European Commission adopted on 6 of April a technical standards to be used by financial market participants when disclosing sustainability-related information under the Sustainable Finance Disclosures Regulation (SFDR). The Delegated Regulation specifies the exact content, methodology and presentation of the information to be disclosed, thereby improving its quality and comparability. The requirements will now be subject to scrutiny by the European Parliament and the Council. They are scheduled to apply from 1 January 2023.


GC Insights also help global instructional investors comply with SFDR.