Article rédigé par Jean-François Pons, avec l’aimable autorisation de Eurofi

[Article en anglais]

The implementation of the Sustainable Finance Disclosures Regulation (SFDR) faces important challenges since its implementation in March 2021.

A first fundamental reason is that the financial investors are requested to assess their portfolios and their financial products vis-à-vis the ESG (Environment, Social, Governance) or sustainable criteria but that a large part of the investees do not disclose their ESG data and trajectories. Large and listed corporates have some transparency obligations due to NFRD (Non-financial Reporting Directive) but there are new and more important obligations in CSRD (Corporate Sustainability Reporting Directive), which will apply only for the 2024 accounts. For other corporates, listed SMEs and SMEs (on a voluntary basis), it will be later.

The difficulties of the so-called “article  9 funds” illustrate another weakness of SFDR. The financial sector has launched funds in line with two articles of SFDR, article 8 and article 9. The so-called “article 8 funds” were supposed to be “light green” (moderately sustainable) and the so-called “article 9  funds” were supposed to be “dark green” (sustainable). 

As it is now well known, there has been a massive declassification of so-called “article 9 funds” in 2022. According to Morningstar, while assets in “article 8 funds” rose by 7.3% in the fourth quarter of last year, assets dropped by 40% in “article  9 funds”, taking the total to € 175 billion ($ 190 billion). This declassification is due to the fact that SFDR is not a labelling regulation and that there is a lack of clarity on the definition of sustainability. Therefore many “article 9 funds” could be accused of greenwashing and their producers preferred to change them in “article 8 funds”.

How can these difficulties be overcome?