Understand the Sustainable Finance Disclosure Regulation (SFDR)

The SFDR is not only used the way it was initially intended, namely as a disclosure framework. It is, in fact, more commonly used as a labeling and marketing tool. But what is this SFDR? And why is it important that we start using it correctly?

SFDR: What is it?

The Sustainable Finance Disclosure Regulation (SFDR) requires increased transparency about the integration of environmental, social, and governance (ESG) factors into investment decisions in the financial sector. The legislation aims to enable investors to make well-informed choices through disclosing better and more information on the sustainability risks and impacts of potential investments. This way, the SFDR contributes to one of the EU’s major political intentions: attracting private finance to transition Europe to a net-zero economy.

Challenges and Opportunities

This means that companies must start collecting and disclosing information on their efforts’ level of sustainability. As a result, if a company doesn’t have this information readily available or is unwilling to provide it, they may miss out on investments. This brings challenges, including requirements for data collection and reporting. However, it also creates opportunities for the development of new sustainable investment products, which opens more financing opportunities for sustainable businesses and products.


The SFDR is also accompanied by the CSRD. Both are parts of the European agenda to make the worlds of sustainability and finance work together to promote sustainable changes. The two regulations are not the same but rather complement each other. They are focused on different target groups. For the SFDR, this is more ‘the investor,’ and for CSRD, this is more ‘the company.’ Although they have really different target groups, they complement each other because these sectors often come into contact. Companies are naturally looking for investors and vice versa. These investors must make more sustainable investments and will thus encounter the SFDR. Therefore, the companies to be invested in need to be demonstrably sustainable. This is where the CSRD comes in, requiring a clear description of the respective company’s (sustainable) practices. In this way, the two legislations interlock and encourage the different target groups.


The Sustainable Finance Disclosure Regulation (SFDR) marks a milestone on the path to a more sustainable financial system. By promoting transparency and accountability, SFDR enables investors to align their investments with their values and contribute to positive environmental and social outcomes.

Companies that already deal with investment firms may have already been asked about their sustainability performance. If not, such inquiries are likely to come in the future. Therefore, it is important to start working on creating thorough and robust reports in time. SmartTrackers software already supports this process for several investment firms. If you have any questions about this, please contact us.

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