On 10 March, the European Union made Regulation 2019/2088 on sustainability‐related disclosures in the financial services sector (SFDR) applicable, requiring Member States to implement more transparent regulations establishing the obligation for financial market participants and financial advisers to report detailed and harmonised information on all pre-contractual, contractual and subsequent stages of the investment process to end investors.

The new regulation

This new regulation is therefore intended to harmonise disclosures to investors that clearly highlight the risks of sustainable investments and the promotion of environmental, social and governance (ESG) factors in relation to financial products in the various ESG areas. Simply put, disclosures on these aspects enable investors to appropriately select and evaluate socially responsible and reliable investments, containing the risk of greenwashing.

Within the EU’s strategy, the sustainable finance regulation is part of a broader legislative project to create an ecosystem of binding ESG rules. The main objective is to make the social and environmental impact of financial products clear and transparent, driving innovation and new prospects to broaden the horizon of the mainstream market.

The Taxonomy Regulation

The approval of Regulation 2019/2088 expanded the taxonomy, a classification system for sustainable economic activities. The Taxonomy Regulation entered into force in July 2020 with the aim of directing investors’ and businesses’ choices towards economic growth without adverse environmental and climate impacts.

Under these new rules, the measurement of the actual impact, which will be carried out in view of effecting real change, therefore shifts the focus to the activities of financial operators, and they are revising their methodological and development approaches based on the impacts generated by the financial services they use and sell.

The importance of indicators

The main need is to implement indicators that certify a financial product in each stage of its use, making its competitive edge over other investment offers clear, by assessing who will truly generate positive, measurable impacts for social development and environmental protection.

All this responds to the need, which has arisen with particular force in the last few years, to  focus on a new concept of finance presenting objectives and purposes that are useful for the community, respectful of the environment and economically sustainable. EU Regulation 2019/2088 is making this type of value creation dynamic, tangible and transparent.