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Sustainable Finance Disclosure Regulation (SFDR) and Real Estate Assets

13 Jan 2022

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The Sustainable Finance Disclosure Regulation (SFDR) is part of the European action plan for Sustainable finance. It increases transparency with ESG related investments, setting disclosure requirements for Financial Market Participants (FMPs) in the European Union. After June 2021, large companies with more than 500 employees must comply with the Principal Adverse Impact (PAI) requirement and publish a PAI disclosure.

What has started as a voluntary set of recommendations has evolved into a regulatory framework used across the globe. The SFDR rules are an EU framework for reporting how ESG factors are being embedded at both corporate and product level, and how they ultimately translate into financial metrics. A set of common rules should give possibility to benchmark and compare how asset owners and managers are approaching the ESG agenda. One of the starting questions are the financial benefits of SFDR reporting. And this is particularly the case in markets where the discussion on climate change is politically charged. While the answer could have many layers, depending on the market, the bottom line is that capital can be at risk.

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