Given the scale and challenge of the risks posed by climate change and other sustainability matters, action and increased effort from all actors, including the financial services sector, are urgently required. Therefore, the European Commission presented the EU Green Deal at the end of 2019. The goal of the EU Green Deal is to make the economy of the EU more sustainable. The European Commission wants to do this by turning environmental and social challenges into opportunities and making the transition just and inclusive for all. Crucial in attaining this goal will be the financing of this transition.
In this light, the European Commission put forward an action plan for sustainable finance prior to launching the EU Green Deal. The aim of the action plan is to create a stable, sustainable, and transparent financial system. It seeks to establish a reorientation of capital flows towards sustainable investment, promote the inclusion of sustainability in risk management, and foster transparency and long-termism into financial and economic thinking. The EU Taxonomy is one of the pieces of legislation that will serve as a cornerstone for this action plan. This year, yet another highly important piece of legislation is coming into force: the EU Sustainable Finance Disclosure Regulation (SFDR).
The EU SFDR applies to financial market participants ranging from asset managers to financial advisors and will be implemented on March 10th, 2021. This piece of legislation aims to increase transparency in how sustainability risks and opportunities are integrated into the investment decisions and recommendations of financial market players. Even though this implementation date is approaching quickly, much remains unclear concerning the use of the EU SFDR. In this blog, Sustainalize will provide an overview of the key dates and what exactly is required by the EU SFDR.