Speaking up about SFDR

The EU’s Sustainable Finance Disclosure Regulation (SFDR) seeks to enhance transparency in the financial markets about sustainability-related claims, prevent greenwashing and channel capital flows toward sustainable economic activities. Since the SFDR took effect, however, Impact Europe (formerly EVPA) noticed growing concerns with the regulation among impact fund managers.  

Fortunately, at the end of 2022, the European Commission announced a public consultation. With the goal of raising impact actors’ voices, we gathered insights from 21 impact fund managers across six European countries, collectively managing €1.881 billion in Assets Under Management.  

Our full report details these fund managers’ perspectives; the top takeaways below boil their message down for busy readers.  
 
Subject to interpretation?  
The survey revealed diverse interpretations of impact investing, with instances of self-identified impact funds investing in B asset classes (Assets Benefiting stakeholders according to IMP methodology) or traditional enterprises. This deviation from the intentionality criteria, which emphasizes investments in C asset classes (Assets Contributing to solutions), stands in contrast to the consensus established by impact stakeholders in the context of the European Impact Investing Consortium.  

Article 9 poses challenges   
The majority of surveyed impact fund managers (17 out of 21) chose to classify their products under SFDR Article 9. Remaining funds are in the process of transitioning to Article 9, while one fund opted to retain Article 8 classification to reduce reporting burdens. A majority of respondents (65%) faced difficulties in reporting under Article 9. Contrary to expectations, all larger funds classified as Article 9 acknowledged challenges, indicating that these difficulties are not exclusive to smaller funds. 

Outsize reporting burdens 
Respondents reported a disproportionate reporting burden for unlisted assets, small enterprises, and emerging markets, regarding mandatory Principal Adverse Impacts, and the emphasis on negative impact reporting, lacking a requirement for substantiating claims of positive social contribution. 

Risks  
Respondents expressed concern that SFDR poses specific risks to impact funds. The current market use of SFDR categories as proxy labels, the broad definition of Article 9, and the absence of explicit consideration for impact investment strategies, all contribute to an increased risk for social/greenwashing and impact washing. 

Fit for purpose?  
Respondents are nearly evenly split in their opinions on whether SFDR is fit for purpose. However, there is a significant preference for revising SFDR, with 17 in favour and 4 opposed.  

What impact fund managers recommend: 

• Clear differentiation of impact funds and implementation of unequivocal legal text – deemed crucial. 
• Enhanced focus on reporting on claims of positive impact, especially on social aspects. 
• Emphasis on tailored and proportional reporting requirements, especially minimum PAI indicators for unlisted SMEs. 
• Enhanced clarity on the alignment of SFDR with other legislations (e.g. EuSEF). 

Join the discussion  
We’re always looking for ways to make impact funds’ concerns a part of policy. Reach out to Jana to continue the conversation!  

With the support of: