SFDR Assessment
We help investors identify gaps in their impact management and reporting approach to ensure alignment to relevant SFDR requirements.
SFDR Assessment
We help investors identify gaps in their impact management and reporting approach to ensure alignment to relevant SFDR requirements.
Is your Fund aligned with Article 6, 8, or 9?
Our Approach
Growing concerns about the credibility of investors’ claims of social and environmental impact have led to new standards and regulations intended to prevent impact- and greenwashing. The EU’s Sustainable Finance Disclosure Regulation (SFDR) is one of the most influential — and complex — of these regulatory efforts. In particular, many key terms in the regulation, such as the definition of a “sustainable investment,” have been left open to investor interpretation, putting increased pressure on investors to meet market expectations. BlueMark helps investors understand the obligations associated with aligning a Fund or Product to SFDR, including by (1) identifying gaps in an investor’s impact or sustainable investing frameworks that may need to be addressed to meet relevant disclosure requirements, and (2) evaluating the strategies and definitions used by investors to ensure alignment with industry best practices.
Our assessments serve to help investors launching new Funds or seeking to fundraise in Europe to determine what it would take to classify under Article 8 vs. 9 based on a detailed review of a fund’s and/or firm’s strategy and impact management processes. Each assessment results in tailored recommendations based on our deep knowledge of industry best practice and learnings from working with a diverse range of market actors. Clients benefit not only from enhanced confidence in their preparedness to comply with regulations, but also from BlueMark’s unique expertise on impact management best practices and peer benchmarks.
Use Cases
BlueMark can help managers to assess their readiness and alignment with SFDR requirements in a number of different scenarios:
Launching a new strategy or seeking evaluation of an existing strategy
Investors that are working on launching a new product may be unsure whether the product should fall under the Article 8 or Article 9 reporting regime. Likewise, investors that have already launched an investment product product may be seeking a third-party opinion on the strength of SFDR alignment.
BlueMark can evaluate the quality of an investor’s investment strategy and ESG/impact management processes. This involves providing our expert opinion on the quality and strength of an investor’s system in relation to complex elements of SFDR, including, but not limited to, the formulation of the sustainable investment objective or environmental or social characteristic, the binding elements, processes for considering the PAIs, and the Minimum Safeguards.
BlueMark conducts SFDR gap analyses as part of our broader practice assessments, enabling us to provide additional recommendations to align with industry best practice, in addition to our SFDR alignment recommendations. Click here for additional detail on how BlueMark evaluates the strength of impact management practices.
Periodic reporting
Investors that working on preparing periodic reporting as required under SFDR may want a third-party opinion on the completeness and reliability of their reporting.
BlueMark can evaluate the completeness of the information in your mandatory periodic SFDR disclosures and assess the reliability of the underlying processes and systems used to generate the data used for reporting. In addition to reviewing the information to be included in the mandatory periodic reporting template, BlueMark will do an in-depth review of the quality and depth of an investor’s impact report, based on our proprietary impact reporting verification methodology.
Click here for additional detail on how BlueMark evaluates the Completeness and Reliability of impact reporting.
The BlueMark Value-Add
We are uniquely positioned to provide clients with in-depth analysis of the strength of their investment strategy and quality of their impact management processes for SFDR. Our deep expertise and wealth of knowledge of industry best practice is grounded in the 125+ verifications we have completed to date. As a result, we can provide recommendations on not only how to meet the bar for alignment with SFDR, but also how to implement best-in-class impact management processes.
In many cases, we can provide insights and advice which complement the legal review of internal or external counsel. For example, we can provide commentary on the strength and quality of the binding elements of a client’s investment strategy and the associated processes for screening against the binding element.
What is SFDR?
SFDR is a regulatory framework introduced by the European Union (EU) aimed at preventing greenwashing by increasing transparency around sustainability claims made by financial market participants (FMPs). The regulation applies to all FMPs domiciled in the EU, as well as non-EU domiciled firms actively marketing financial products in any EU member state. Financial products may be classified as either Article 6, 8, or 9, depending on the product’s investment strategy, which entails different levels of sustainability commitment and corresponding levels of disclosure requirements.
Key features of the regulation include:
- Mandatory pre-contractual and periodic disclosures based on the product’s classification
- Reporting on the alignment of a fund’s investments with the EU Taxonomy for sustainable activities
- Disclosure of Principal Adverse Impacts (PAIs) of the fund’s investment activities — a set of environmental and social indicators ranging for Scope 1-3 emissions to the gender pay gap
SFDR is a highly complex regulatory framework, and as such, the specific requirements to be in compliance with the regulation may depend on factors such as investment strategy, asset class, and domicile.