SFDR: Sustainable Finance Disclosure Regulation
I. Definition
SFDR stands for Sustainable Finance Disclosure Regulation.
It is a European regulation that requires financial market participants to explain how they integrate sustainability risks and environmental, social, and governance (ESG) factors into their investment decisions.
The main goal of SFDR is to increase transparency and prevent greenwashing.
II. Context
SFDR was introduced by the European Union as part of its broader sustainable finance framework.
It applies mainly to asset managers, investment funds, financial advisors, and institutional investors operating in the EU.
Under SFDR, financial actors must disclose:
- How sustainability risks are considered in investment decisions
- Whether investments have negative impacts on sustainability (called Principal Adverse Impacts)
- How financial products are classified (Article 6, Article 8, or Article 9)
SFDR works alongside other regulations such as CSRD and the EU Taxonomy.
Together, they create a consistent system where corporate sustainability data feeds financial reporting, and financial reporting influences capital allocation.
III. Related terms
- CSRD – Corporate Sustainability Reporting Directive
https://www.orizscore.com/blogs/csrd-corporate-sustainability-reporting-directive - EU Taxonomy
https://www.orizscore.com/blogs/eu-taxonomy - Double materiality
https://www.orizscore.com/blogs/csrd-double-materiality
IV. Example
An investment fund offers a product labeled as environmentally responsible.
Under SFDR, the fund must:
- Explain how sustainability risks are assessed
- Disclose whether the fund considers negative impacts on climate or society
- Justify its classification (for example, Article 8 if it promotes environmental characteristics)
To do this properly, the fund relies on CSRD-aligned data from companies, such as verified emissions data or sustainability indicators. This creates a clear link between corporate reporting and financial disclosure, improving trust and comparability for investors.
