SFDR requires financial market participants and financial advisors to provide standardized disclosures on how they integrate sustainability risks and consider adverse sustainability impacts in their processes. This applies both at the entity level and at the product level.

The main objectives of SFDR are:

1.  To improve transparency in the market for sustainable investment products

2. To prevent greenwashing

3. To increase comparability of financial products for end-investors

Mandatory ESG disclosures

SFDR requires financial market participants and advisors to disclose how they integrate environmental, social, and governance (ESG) risks into their investment decisions and advice. This aims to increase transparency and reduce greenwashing in the financial sector.

Principal Adverse Impact (PAI) reporting

Financial institutions must report on the negative impacts their investments have on sustainability factors. This includes metrics related to greenhouse gas emissions, biodiversity loss, water pollution, and social issues.

Product categorization

SFDR introduces a classification system for financial products:

• Article 6: Products that do not integrate sustainability into the investment process
• Article 8: Products promoting environmental or social characteristics
• Article 9: Products with sustainable investment as their objective

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