A status update
SFDR deadline is fast approaching, and many financial market participants (FMPs) operating in the EU will need to submit their reports on their environmental, social, and governance (ESG) metrics before the 30th June deadline.
With more and more clients, stakeholders, and investors scrutinising ESG disclosures, ESG is no longer solely about compliance. It’s also about remaining credible in a sustainability-conscious marketplace.
Research done by Invest Europe in their annual ESG KPI Report has found that around 83% of general partners believe that they need to be either Article 8, 9, or will need to be in future if they are to receive investment from limited partners. And 77% of limited partners expect that general partners ought to be Article 8 or 9.
Today, we’re taking a closer look at what organisations can do to prepare for the SFDR deadline, and what the current state of play is for this regulation in 2025.
What is SFDR?
The Sustainable Finance Disclosure Regulation (SFDR) is an EU regulation that requires FMPs to disclose how sustainability risks are integrated into their decision-making processes. It applies to a wide range of different market participants operating in the EU or marketing to EU investors, and it includes venture, private equity, and private credit.
The SFDR became mandatory in 2021, and is often viewed in parallel with the Corporate Sustainability Reporting Directive (CSRD), which requires investee companies to report ESG data aligned with the EU’s European Sustainability Reporting Standards (ESRS). The CSRD sets out the regulations for companies, but the SFDR establishes disclosures for fund managers.
In short, SFDR focuses on how your investments impact the world, while CSRD includes how the world’s sustainability issues affect your business.
The overlap is intentional, but the applications are distinct, and it’s important that these regulations are aligned so that different stakeholders aren’t requesting different metrics.
However, there are some key differences, the most significant of which relate to Principal Adverse Impacts (PAI).
What’s required by 30th June?
The 30th June 2025 deadline is when disclosures on Principal Adverse Impacts must be submitted for the 2024 reporting year. In simple terms, PAIs ask “How might our investments harm people or the planet, and what are we doing about it?”. There are 18 different mandatory PAI indicators, spanning topics from greenhouse gases to the gender pay gap. For a full list of the optional and mandatory PAIs, you can download a one-page guide here.
These PAIs need to be publicly available on the company’s website, along with a PAI statement on how the firm plans to take action to mitigate any adverse effects.
What should you be doing now?
With the deadline fast approaching, firms should ensure they are:
- Gathering 2024 data for all relevant PAIs, including emissions, energy consumption, gender diversity, and more.
- Reviewing and, if necessary, updating methodologies for data estimation. Methods should ensure the transparency and quality of investee company data, as this will be included in disclosures.
- Engaging with ESG software providers will improve coverage and data accuracy, minimise reporting workloads, and integrate systems handling both CSRD and SFDR frameworks.
- Finalising their PAI statement in the required template.
- Reviewing internal policies and ensuring governance structures are aligned with disclosed practices.
Contact our experts for more info
The SFDR represents a major step toward embedding sustainability into the heart of financial decision-making. While the data challenges are real, especially in the absence of full CSRD roll-out, firms that prepare thoughtfully will gain a competitive advantage in their field.
Our ESG experts recently hosted a webinar discussing all things SFDR – from PAIs to learnings from previous reporting cycles. If you're navigating SFDR reporting and need support understanding the regulatory overlap or identifying reliable data sources, click here to watch the webinar.
As always, our experts are only an email away. If you have any queries – big or small – we’re here to help. Reach out to us and we’ll get back to you ASAP.
A status update
SFDR deadline is fast approaching, and many financial market participants (FMPs) operating in the EU will need to submit their reports on their environmental, social, and governance (ESG) metrics before the 30th June deadline.
With more and more clients, stakeholders, and investors scrutinising ESG disclosures, ESG is no longer solely about compliance. It’s also about remaining credible in a sustainability-conscious marketplace.
Research done by Invest Europe in their annual ESG KPI Report has found that around 83% of general partners believe that they need to be either Article 8, 9, or will need to be in future if they are to receive investment from limited partners. And 77% of limited partners expect that general partners ought to be Article 8 or 9.
Today, we’re taking a closer look at what organisations can do to prepare for the SFDR deadline, and what the current state of play is for this regulation in 2025.
What is SFDR?
The Sustainable Finance Disclosure Regulation (SFDR) is an EU regulation that requires FMPs to disclose how sustainability risks are integrated into their decision-making processes. It applies to a wide range of different market participants operating in the EU or marketing to EU investors, and it includes venture, private equity, and private credit.
The SFDR became mandatory in 2021, and is often viewed in parallel with the Corporate Sustainability Reporting Directive (CSRD), which requires investee companies to report ESG data aligned with the EU’s European Sustainability Reporting Standards (ESRS). The CSRD sets out the regulations for companies, but the SFDR establishes disclosures for fund managers.
In short, SFDR focuses on how your investments impact the world, while CSRD includes how the world’s sustainability issues affect your business.
The overlap is intentional, but the applications are distinct, and it’s important that these regulations are aligned so that different stakeholders aren’t requesting different metrics.
However, there are some key differences, the most significant of which relate to Principal Adverse Impacts (PAI).
What’s required by 30th June?
The 30th June 2025 deadline is when disclosures on Principal Adverse Impacts must be submitted for the 2024 reporting year. In simple terms, PAIs ask “How might our investments harm people or the planet, and what are we doing about it?”. There are 18 different mandatory PAI indicators, spanning topics from greenhouse gases to the gender pay gap. For a full list of the optional and mandatory PAIs, you can download a one-page guide here.
These PAIs need to be publicly available on the company’s website, along with a PAI statement on how the firm plans to take action to mitigate any adverse effects.
What should you be doing now?
With the deadline fast approaching, firms should ensure they are:
- Gathering 2024 data for all relevant PAIs, including emissions, energy consumption, gender diversity, and more.
- Reviewing and, if necessary, updating methodologies for data estimation. Methods should ensure the transparency and quality of investee company data, as this will be included in disclosures.
- Engaging with ESG software providers will improve coverage and data accuracy, minimise reporting workloads, and integrate systems handling both CSRD and SFDR frameworks.
- Finalising their PAI statement in the required template.
- Reviewing internal policies and ensuring governance structures are aligned with disclosed practices.
Contact our experts for more info
The SFDR represents a major step toward embedding sustainability into the heart of financial decision-making. While the data challenges are real, especially in the absence of full CSRD roll-out, firms that prepare thoughtfully will gain a competitive advantage in their field.
Our ESG experts recently hosted a webinar discussing all things SFDR – from PAIs to learnings from previous reporting cycles. If you're navigating SFDR reporting and need support understanding the regulatory overlap or identifying reliable data sources, click here to watch the webinar.
As always, our experts are only an email away. If you have any queries – big or small – we’re here to help. Reach out to us and we’ll get back to you ASAP.
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