When the European Union’s Sustainable Finance Disclosure Regulation (SFDR) came into force on March 10 last year, the financial services industry, already besieged by seemingly unending reporting requirements, collectively held its breath.
In recent years, the combination of increased public demand paired with an easily understandable umbrella term rocketed ESG to the fore, hitting the headlines and spawning countless product launches.
“Investors’ mindsets towards sustainable investing had already matured past pure altruism, recognising that environmental, consumer and regulatory needs had aligned in a manner that cast ‘green’ as the new ‘growth’,” says Will Wilson, ESG Assistant Vice President, Climate Lead at Apex Group. “Following investors’ lead, the Private Equity industry put renewed energy into an area that had previously been considered niche.”
The speed of this transition opened up ESG, and what defines an ESG product, to interpretation. In some cases, it has also opened it up to opportunism.
Enter SFDR which, among other things, was tasked with improving the disclosures and transparency of ESG offerings. It affords investors a clearer understanding of their impact and counters attempts to ‘greenwash’ unsuitable products as environmentally sound.