To prevent greenwashing in the financial services sector, the EU enforces the Sustainable Finance Disclosure Regulation (SFDR). This framework mandates clear transparency rules for investment funds, requiring managers to categorize products based on their actual sustainability objectives.
The SFDR Product Classification Matrix
Investment products must fit into specific, regulated disclosure categories:
- Article 6 Funds (Standard Products): Funds that do not integrate sustainability goals into their investment process, or that declare ESG risks are not financially material to their strategy.
- Article 8 Funds (Light Green Products): Funds that actively promote environmental or social characteristics as part of their investment criteria, provided the target companies follow good governance practices.
- Article 9 Funds (Dark Green Products): Funds that have a direct, sustainable investment objective. Every asset in the portfolio must be selected for its ability to drive a measurable sustainability outcome, such as carbon reduction.
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