ESG_Theme in platform_Image_1366x120_v2 ESG_Theme in platform_Image_1366x120_v2 ESG_Theme in platform_Image_1366x120_v2

Demystifying SFDR. What is it and how can it help your ESG investment strategy?

Education 2 minutes to read
Ida portrait
Ida Kassa Johannesen

Head of ESG investments, Saxo Bank.

To make it easier for investors to identify and compare sustainable products, tackle greenwashing and ultimately direct capital towards sustainable investments, the European Union enacted the Sustainable Finance Disclosure Regulation (SFDR). 

SFDR came into effect in March 2021 and applies to mutual funds and ETFs, alternative investment funds, managed portfolios and financial advice. The regulation aims to provide more transparency and more information to investors, allowing them to better assess the veracity of fund managers’ sustainability claims. 

In short, SFDR should help investors make better-informed decisions.

SFDR requires EU-based asset managers, as well as non-EU-based asset managers that market funds in the EU, to classify their funds under one of three categories: Article 9 (dark green), Article 8 (light green) or Article 6 (no green). 

ESG_Theme in platform_Article image_1368x385_v3

ESG risk and other important considerations

Despite its growing popularity, sustainable investing (aka ESG investing) still faces challenges, in particular when it comes to disclosure. Because many countries do not require companies to disclose ESG data, many funds might not have the needed company information to report. Thus, what risks happening, at least at the beginning, is that funds’ disclosure will be made on a best-effort basis and thus may be patchy and varied.

In addition, as the classification of funds is done by the asset managers themselves, there is a risk that some managers misclassify funds and mislead investors, especially at the start of the implementation of the new rules.  

When it comes to ESG performance, according to some studies (SRI & Performance study by LFDE, Foundations of ESG Investing by Giese, Lee, Melas, Nagy and Nishikawa), ESG strategies have tended to outperform non-ESG strategies in recent years. It is, however, important to note that, as ESG is a relatively new concept with little historical performance data, making inferences about ESG outperformance or the source of that performance is not recommended. 

The growing demand and interest for ESG investing has led to staggering inflows into ESG strategies which, in turn, have contributed to inflated returns for a number of ESG-friendly stocks. There is, therefore, a possibility that if demand for ESG investing goes down, performance might be negatively affected.

How to find ESG investing ideas

You can browse the Article 9 and Article 8 themes that provide lists of dark green and light green funds according to EU SFDR.

Before making any investments, remember to review the product’s information available on the platform and make sure to consider your investment objectives and risk tolerance, as well as your time horizon.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.