A central pillar of the European Union’s Sustainable Finance Action Plan is the Sustainable Finance Disclosure Regulation (SFDR), which applied from March 2021.
The SFDR requires asset managers to make sustainability related disclosures with respect to the financial products and services they offer. The broader suite of sustainable finance regulations aims to direct private capital into sustainable economic activities, reduce the risk of greenwashing and align the economy with the objectives of the Paris Agreement and the United Nations’ Sustainable Development Goals (SDGs).
SFDR requires asset managers to make disclosures at a product level and firm level. Financial products, including managed accounts, can fall into three categories under SFDR which determine the sustainability related disclosures to be made for such products.
An overview of product classifications
Although a disclosure regime, not a labelling regime, the regulation effectively establishes three product classifications, based on whether the disclosure obligations set out in Articles 6, 8, or 9 apply. We summarise these below.
Article 6
- Not subject to Articles 8 or 9.
- Still consider environmental, social and governance (ESG) risks and opportunities.
Article 8
- Promote environmental and/or social characteristics through binding investment criteria.
- May also be referred to as Light Green Products.
Article 9
- Have sustainable investment or a reduction in carbon emissions as their objective.
- May also be referred to as Dark Green Products.
Firm level disclosures
Asset managers in scope for SFDR must also make firm level disclosures about how they consider sustainability risks in their investment decision making process, how their remuneration policy is aligned with such an approach to sustainability risk management and whether they consider the ‘principal adverse impacts’ of their investment decisions on sustainability factors. Our Principal Adverse Sustainability Impacts statement and sustainability risk disclosures can be found here.
Implementing SFDR at Macquarie Asset Management
Macquarie Asset Management (MAM) is committed to responsible investment, as demonstrated by becoming a signatory to the United Nations’ Principles for Responsible Investment (PRI). MAM has been a signatory to the PRI since 2015. The public markets businesses of Macquarie Asset Management’s are committed to incorporating the principles into its investment activities.
The public markets businesses of Macquarie Asset Management have several European entities within the scope of the regulation, all of which were fully compliant by the 10 March 2021 deadline.
Macquarie Asset Management FY23 Sustainability Report
At Macquarie Asset Management, we view sustainability as part of our fiduciary duty to protect and grow our clients’ assets. This focus also helps us generate positive outcomes for our investee companies and the communities they serve. Our latest Sustainability Report outlines the progress we have made over the past financial year.
SFDR requires firms to classify all their in-scope products and managed accounts. As mentioned in our introduction, although a disclosure regime, the regulation effectively establishes three product classifications, based on whether the disclosure obligations set out in Articles 6, 8, or 9 apply.
While we do have funds that are classified as Article 6, below we have specifically detailed our Article 8 and Article 9 funds which are available for investment.
What is SFDR? Why is it important?
SFDR is part of the European Union’s Sustainable Finance Action Plan. It introduces mandatory sustainability disclosures which will help to increase the amount of sustainability related information available to investors. Such transparency will enable investors to make greater comparisons between ‘green’ products and will help to bring standardisation to the industry. Investors have found the lack of agreed definitions or concepts of what is ‘green’ a challenge and it is hoped that SFDR will enable investors to make more informed decisions which will in turn increase investment into sustainable activities.
Who does SFDR apply to?
SFDR applies to “financial market participants” including alternative investment fund managers, management companies, and MIFID investment firms, amongst others, which offer products to investors in the EU.
Where can I find further information about MAM's Article 8 and Article 9 Funds?
MAM offers financial products across all three classifications, including a range of Article 8 and Article 9 funds.
SFDR product disclosures are available on the website for the relevant fund. High level disclosures can be found in the prospectus of the relevant fund, with more detailed website disclosures available for financial products which are classified as Article 8 or Article 9. Disclosures for a particular fund can be found within the ‘Information’ tab under the heading ‘Sustainability-related disclosures’.
What are the Ten Principles of the UN Global Compact?
Corporate sustainability starts with a company’s value system and a principles-based approach to doing business. In doing so firms need to operate in ways that, at a minimum, meet fundamental responsibilities in the areas of human rights, labour, environment, and anti-corruption. Responsible businesses enact the same values and principles wherever they have a presence and know that good practices in one area do not offset harm in another. The Ten Principles of the United Nations Global Compact primarily cover human rights, labour, environment, and anti-corruption.
What are the UN SDGs?
The 2030 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015, provides a shared blueprint for peace and prosperity for people and the planet.
Core to this is the 17 Sustainable Development Goals (SDGs), which are an urgent call for action by all countries. They recognize that ending poverty and other deprivations must go together with strategies that improve health and education, reduce inequality, and spur economic growth — all while tackling climate change and working to preserve the world’s oceans and forests. Examples of the SDGs include Climate Action, Affordable and Clean Energy, No Poverty, Gender Equality and Decent Work, and Economic Growth. Details of all 17 SDGs can be found online at the UN’s dedicated site.
How can I find out what classification my fund is?
If you need assistance with determining the classification of a particular financial product, please reach out to us using the contact details listed below.
Will you be making disclosures regarding the alignment of portfolios to the EU Taxonomy?
Yes. The EU Taxonomy is a classification system for determining whether economic activities are environmentally sustainable. MAM is required to make disclosures regarding the Taxonomy alignment of its portfolios and was compliant with the 1 January 2022 deadline for all in-scope products.
What is greenwashing?
Greenwashing is the process of conveying a false impression or providing misleading information about how a company’s products are more environmentally sound. Greenwashing is considered an unsubstantiated claim to present the view that a company’s products are environmentally friendly. SFDR aims to prevent greenwashing by increasing transparency about the sustainability of financial products through detailed disclosures.
We invest in sustainability today for a better tomorrow
We seek to invest sustainably because we believe it leads to better long term outcomes fro our clients, investee companies and the communities they serve. By supporting businesses to reduce their greenhouse gas emissions and transition to a low-carbon economy, we believe our efforts can help to preserve and create value, while delivering positive outcomes for communities and the environment.
Do you have questions about SFDR? If you would like to find out more about our Article 8 and Article 9 funds or learn more about our responsible investing approach, please contact us.
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