What does SFDR stand for in the context of sustainable finance?

The correct understanding of SFDR is that it stands for Sustainable Finance Disclosure Regulation. This regulation was introduced by the European Union as part of its broader framework to enhance transparency in the financial services industry regarding sustainability. The SFDR aims to provide investors with greater insight into the sustainability of financial products and the sustainability risks associated with investments.

The regulation requires finance firms to disclose specific information about how they consider sustainability risks in their investment processes and the potential impact of these risks on the returns of investments. By doing so, the SFDR seeks to prevent greenwashing and ensure that investors can make informed decisions based on accurate and comparable sustainability information.

This focus on sustainability in finance is essential for fostering a more responsible investment environment, aligning capital flows with sustainable development goals, and promoting the transition to a low-carbon economy.