The market takes up the challenge of the SFDR

The EU Sustainable Financial Disclosure Regulation (SFDR), which has just entered into force, is a watershed for sustainable finance. Initial data shows that the market has issued a prompt response to the regulatory challenge. This immediately turned into a new ground on which to compete.

The sustainable finance action plan launched by the European Commission in spring 2018¹ includes the fight against greenwashing among its main objectives: this is the practice by which some financial players, but also some companies, try to build an image through the communication of sustainability-focused subjects and in particular the environment, keeping silent on or diverting attention from behaviour that does not correspond to what is declared or reported. Forcing financial operators to put their money where their mouth is, in short, is what is required by a rule under the EU Action Plan which has just entered into force.

A watershed for sustainable finance

On 10 March, EU Regulation 2019/2088 on sustainability-related disclosure in the financial services sector² came into force, better known as the SFDR (Sustainable Finance Disclosure Regulation). To guarantee savers and in general fair competition in the market, the SFDR requires operators (including asset management companies, pension institutions and insurance companies offering investment products) and financial advisors, to provide transparent communication on the way in which they integrate sustainability principles and criteria into their operations.

The SFDR represents a watershed, as before its introduction there were no specific regulatory obligations to be complied with by those who labelled financial products as sustainable. In particular, the market’s attention has honed in on investment products that fall within the cases set out under Article 8 of the SFDR (products that promote, among other things, environmental or social aspects) and by the more stringent Article 9 (products that have sustainable investments as an objective).

10 March 2021

Date of entry into force of EU Regulation 2019/2088 on sustainability-related disclosure in the financial services sector (Sustainable Finance Disclosure Regulation, or SFDR).

Main provisions of the SFDR:

Article 6 (for all financial operators and consultants).

Transparency on the integration of sustainability risks into the investment process.

Article 8 (for financial products that promote, among other things, environmental or social aspects).

Transparency of the promotion of environmental or social aspects in pre-contractual disclosure.

Article 9 (for financial products that have sustainable investments as their objective).

Transparency of sustainable investments in pre-contractual disclosure.²
 

Ready, set, go! The competition begins…

The advent of the SFDR was accompanied by some critical issues³ that will be expected to be resolved over time. In addition, all the provisions of the SFDR will only become fully operational in 2022⁴ , for example those that are second level (L2) concerning the use of specific technical standards (RTS-Regulatory Technical Standard). Nonetheless, the way in which financial operators responded to regulatory obligations immediately attracted great interest⁵ and began to form a new ground on which to compete.

In Europe, it is estimated that approximately 21% of the financial instruments monitored fall under Articles 8 and 9 of the SFDR, for a value equal to approximately 25% of the total assets under management.

The response from AXA IM

AXA IM was ready for the appointment with the SFDR. As of March 2021, 90% of AXA IM's equity, bond and multi-asset strategies and funds were compliant with Articles 8 and 9 of the SFDR⁶ .

“The SFDR regulation requires us to classify our product range for greater transparency and these figures demonstrate how far advanced AXA IM is in its journey to becoming one of the world’s leading responsible investors.”, said Marco Morelli, Executive Chairman at AXA Investment Managers.

“The regulation also aims to ensure financial market participants take into account sustainability risks and principle adverse impact across the assets they manage, something we had already been doing for many years. Our Responsible Investment framework has significantly developed over time, including our exclusion policies and proprietary ESG scoring methodologies, combined with our active ownership and stewardship initiatives.”

“True ESG integration is now a reality and the era of sustainability is reaching into every asset class and every portfolio. ESG is a critical input to our investment decision making and we are proud of what we have achieved so far and are ambitious in our goals. With already 90% of the assets comprised in our eligible funds and strategies falling into the most demanding and stringent of the EU regulatory requirements, our existing product range further reflects our commitment to sustainable finance. We expect this figure to grow over time as we further develop our sustainable product offering including in our Alternatives product range.”