In today's dynamic financial world, sustainability is becoming not only an ethical priority but also a critical measure of the value of investments. In this article, we will review the SFDR and the solutions offered by the Green0meter platform to meet its requirements.  
SFDR is another acronym in the alphabet of solutions to lead the European Union to carbon neutrality by 2050. It is the Sustainable Finance Disclosure Regulation, or SFDR, a regulation of the European Parliament and the Council of the EU on sustainability-related disclosures in financial services, which applies from 2021. 
The SFDR was adopted to harmonise transparency rules for financial market participants and financial advisers, particularly in how they incorporate environmental, social and governance (ESG) factors into their investment decisions and financial advice. The aim is to provide a clear overview of their sustainability ambitions and to avoid financial products being falsely presented as environmentally friendly when they are not.  
 The regulation stimulates financial market players to make strategic decisions and share them transparently. As a result, investors have better and comparable information on sustainability and can make informed decisions. With this approach, the financial sector becomes more accountable, disciplined and efficient, encouraging competitiveness in the fast-growing sustainable finance industry.

What are the key SFDR requirements for financial market actors? 

The regulation draws a strong distinction between external sustainability risks, which are ESG events that could materially adversely affect the value of an investment, and non-recognisable sustainability impacts as a result of investments. At the same time, the Regulation specifies the potential positive sustainability impacts of investments. 
Therefore, financial market participants are now required to disclose the following information on their websites and in pre-contractual documentation: 
- Information on how they assess the negative impacts of their business models, in particular the main negative externalities of investment decisions or financial advice on sustainability and ESG factors (the so-called PAI report, Principal Adverse Impact), 
- information explaining why they believe there is no such negative impact,  
- how financial market participants integrate sustainability risks into their investment decision-making and financial advice processes,  
- and how their remuneration policies are consistent with the integration of sustainability risks.

Transparency of financial products: the difference between light-green and dark-green investments

At its core, the SFDR pursues similar objectives to the CSRD or the EU Taxonomy: the legislators seek to create a common vocabulary on sustainability, as in previous years it has been very challenging to distinguish whether certain financial products or investments can be considered sustainable or whether they are greenwashing, wrapped in catchy claims and green-brown design.  
For this reason, the SFDR tracks sustainable financial products and classifies them according to different levels of ambition: financial products that promote environmental and social features are now labelled "light green" if these features are one of the main functions of the product, while products that have a sustainable investment objective, such as reducing greenhouse gas emissions, are now labelled "dark green". 
Both categories of financial products must explain in their pre-contractual documentation and on their websites how they will achieve their impact. If a financial market participant, such as an investment fund, does not want to incorporate these policies and address sustainable investments, it will be labelled as grey. Such a fund must include this information in its constitution and, importantly, must not use sustainability claims on its website or marketing materials. Grey funds or financial products are no longer restricted; however, they can be expected to be of less interest to banks or asset managers who already monitor the Green Asset Ratio, i.e. the ratio of sustainable assets to the total assets of the institution.

Example: what are the obligations for light-green and dark-green investment funds? 

A fund can be considered light-green if it: - promotes positive environmental or social characteristics (the SFDR does not define these characteristics in this case, they are defined by the fund itself), 
- has an internal methodology for measuring and mitigating these impacts, 
- complies with the necessary information obligations under the EU Taxonomy (internal sustainability policy, web-based information obligation, regular reporting from 2023 onwards based on the criteria set out in the regulatory technical standards). 
A fund can be considered dark-green if, in addition, it has as its objective active sustainable investing and/or reducing its carbon footprint through its assets. Dark green funds are subject to stricter regulation and auditing. They must disclose in their final reports information on the overall sustainability impact of their financial products using appropriate indicators. 
By way of illustration, for a real estate fund, any investment or loan for the construction or management of a building with an energy efficiency class worse than class "B" can be considered a violation of SFDR regulations and therefore greenwashing. Thus, the dark-green category guarantees that financial flows are channeled directly to actively improve environmental or social indicators in society. 

How can Green0meter help you?

Green0meter brings an innovative digital SFDR platform solution to your company. Here you can collect and manage your data, calculate benchmarks and prepare texts for the necessary documents (PAI report, KIT, Statute, Sustainability Policy, etc.) in a few clicks through automated processes. 
Green0meter prepares customized solutions and adjusts the functioning of the platform according to your current and future needs. We will set everything up in a workshop with key users to fine-tune the data collection process and use of the platform. We then calculate the sustainability scores of individual assets, such as real estate or bonds, using an ESG questionnaire. We monitor these values quarterly, calculate ESG risks and report. In addition, we can generate ESG reports for individual assets on an ad hoc basis and analyse their compliance with the EU Taxonomy. 
Within the SFDR platform, the service of benchmarking individual assets, e.g. buildings, in terms of their environmental performance is of great interest to our customers. Thanks to our database with data on hundreds of buildings, which includes both anonymised data and information from publicly available sources, we have benchmarks for different types of buildings (shopping centres, offices, warehouses, cold storage, etc.). These benchmarks give you an overview of how your buildings compare to others and what you should focus on to improve your overall score. 

Contact us to explore the possibilities offered by Green0meter's SFDR platform