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The Sustainable Finance Disclosure Regulation (SFDR)
The SFDR is a key pillar of the EU's Sustainable Finance Action Plan, aimed at enhancing transparency in sustainable investing. By setting mandatory disclosure requirements, it promotes consistent and comparable information on how sustainability risks and impacts are integrated into investment decisions. Through product categorization based on sustainability objectives, SFDR may help investors make informed decisions and align capital flows with the EU's sustainability goals.
Navigating the New SFDR Categories
The European Commission's proposed changes introduce three new product categories—Transition, ESG Basics, and Sustainable—intended to simplify requirements and refine sustainability classifications. Our preliminary analysis highlights notable changes in the investment landscape under this framework.
A Trusted Partner
Morningstar Sustainalytics provides the data, insights, and regulatory expertise to help you navigate the SFDR proposals. Beyond compliance, our climate, risk, impact and engagement data can support product differentiation and help position you as a leader in sustainable finance.
Key Findings from Our Analysis
- New categories replace the current Article 8 and 9 regime.
- Transition: Up to 3% of AUM.
- ESG Basics: Expected at 32%–41% of AUM (down from 56%).
- Sustainable: May grow to as much as 7% of EU funds.
- Article 6: Could reach 52%–70% of the market.
- Several details, including category names and criteria, remain to be clarified.
Unlock Opportunities with Sustainalytics
The SFDR proposals present both challenges and opportunities. With Sustainalytics’ data and insights, you can navigate these changes confidently and develop innovative solutions aligned with your goals.
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Coverage
Full coverage of all mandatory corporate and sovereign indicators and comprehensive coverage of 95% of voluntary indicators.
Research Universe
12,500+ Companies
172 Countries
Beyond the PAIs, full compliance with the SFDR may require a more comprehensive set of ESG research solutions. Sustainalytics Client Advisory teams can advise you on finding the right mix to meet your organization’s compliance needs.
Key Features and Benefits
Comprehensive ESG Solutions
From security selection to active ownership, Sustainalytics can provide investors with a coherent set of solutions to identify and manage material ESG risks (as per SFDR requirements).
Established ESG Research
Morningstar Sustainalytics' well-established, industry-leading ESG research spans across Risk Ratings, Climate, Impact and Engagement.
Alignment between Company and Fund Data
Morningstar's fund-level SFDR leverages Sustainalytics' company-level research ensuring consistency.
Dedicated ESG Client Advisory
With one of the largest dedicated ESG client advisory teams, we can advise clients on finding the right mix of ESG solutions to comply with all the SFDR requirements in a way that suits your organization’s needs.
Morningstar SFDR Fund and Portfolio Solutions
Morningstar collects and disseminates ESG fund type information based on SFDR disclosure requirements for funds that promote ESG characteristics (Article 8) or that have ESG investment objectives (Article 9). Through its market-leading “Full Holdings” database, users of third-party funds, like advisors and fund-of-funds, will be able to access the underlying securities’ PAI assessments.
How Sustainalytics’ ESG Research can be used to Comply with SFDR
Meeting all the SFDR requirements will depend on the investor’s strategy and the desired ESG characteristics of their funds. The examples below are illustrative of how Sustainalytics’ ESG research could be used by investors.
Can support the policy statements on integrating sustainability risks in investment decisions and risk management. The underlying data and metrics can support reporting requirements for funds categorized as having ESG characteristics (Article 8) or ESG investing objectives (article 9).
Can support security selection decisions in relation to the creation of investment funds with ESG objectives (Article 9).
These services can support investors in managing ESG risks within their portfolio post investment. The Global Standards Engagement service focused on ensuring compliance to international standards that are referenced in SFDR regulation, such as the UN Global Compact and OECD Guidelines for Multinationals.
These research solutions can be used to create compliant investment universes by screening out companies that do not adhere to international standards or “do-no-significant-harm” criteria, respectively.
Aligned to Sustainalytics’ company research, Morningstar’s indexes can be used for reporting and benchmarking on ESG performance.
Why Sustainalytics?
A Single Market Standard
Consistent approach to ESG assessments across the investment spectrum.
Award-Winning Research and Data
Firm recognized as Best ESG Research and Data Provider by Environmental Finance and Investment Week.
End-to-End ESG Solutions
ESG products and services that serve the entire investment value chain.
25+ Years ESG Expertise
350+ ESG research analysts across our global offices.
Largest Second-Party Opinion Provider
As recognized by Environmental Finance and the Climate Bonds Initiative.