SFDR raises the bar for transparency and accountability in investment management, introducing new rules for how investment managers need to incorporate and disclose on sustainability risks. It sets standards for classifying funds as “grey”, “light green” or “dark green”, requiring changes to product documentation and marketing materials, with strict reporting requirements for “green” funds.

Specifically, investment managers will have to start reporting on the safeguards put in place to ensure portfolio companies comply with global standards, such as the UN Guiding Principles on Business and Human Rights, as well how their investments may negatively impact sustainability factors, or the “Principle Adverse Impacts” (PAIs) of their investments.