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Sustainable Finance and the end of greenwashing?

The new EU Sustainable Finance Disclosure Regulation (SFDR) came into force just over one week ago with the aim of doing away with “greenwashing”. Investment funds with sustainable credentials are increasingly in demand, leading to industry concerns that some managers may claim their funds are more “green” than they really are. The SFDR looks to do away with this, with disclosures surrounding sustainability required for in-scope firms. SFDR is part of a package of EU regulations broadly designed to support the redirection of capital into more sustainable businesses.

Today I joined a panel of investment managers at the Real Deals ESG and Investment Management conference to discuss implementation plans and pains for the SFDR. We covered a number of points including the differences (and parallels) between Article 8 “light green” and Article 9 “dark green” investment products.

The SFDR is not only of relevance to the firms that are directly caught by it. There is no doubt that companies seeking investment will look to demonstrate that they constitute potential "sustainable investments" for green funds, as part of which they will need to ensure that their practices do not significantly harm any of the environmental or social objectives set down by SFDR.

This "do no significant harm" principle will be a tricky one for investee companies to overcome, but crucial if they wish to attract investment from the "greenest of green" Article 9 funds and Article 8 “mid green” funds pursuing sustainable investments. It will be interesting to see how the SFDR implementation progresses and how the market will adapt as sustainable investment becomes ever more important.

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