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Sustainable Finance Disclosure Regulation (SFDR)

The Sustainable Financial Disclosure Regulation sets out sustainability reporting requirements for financial market participants in the EU.

What do I need to know?

The Sustainable Financial Disclosure Regulation (SFDR) is one of the key elements of the Sustainable Finance Action Plan (SFAP). It requires large financial firms, asset managers, credit institutions, and banks to publicly disclose information about their key sustainability impacts through their financial activities.

This means that they must provide information on the environmental, social and governmental impacts of both their operational activities and the direct and indirect impacts of their financial investments, borrowings or loans.

Companies must report on these impacts under the ESGs and the 3 domains of the Greenhouse Gas Protocol (GHG Protocol):

  • Scope 1: The emissions from owned or operated facilities (office equipment, the exhaust from a company's fleet of vehicles)
  • Scope 2: The emissions from purchased energy
  • Scope 3: This includes CO2 emissions associated with upstream and downstream activities (upstream: transportation, business travel, purchased services, products, etc.)(downstream: production, investment, use of products manufactured by the company for disposal, etc.).

The reporting system is structured as a top-down reporting system, creating a trickle-down effect where banks and credit institutions are covered by the most comprehensive reporting requirements. Therefore, asset managers who borrow money or bonds from credit institutions and banks need to set up their own reporting systems to provide the information that banks and credit institutions need.

In addition, asset managers need ESG information from their investments to be able to report to credit institutions and banks.

Is it relevant for me?

Most real estate owners and investors are considered financial actors. Generally, a company is considered a financial actor if its business is based on investing in and owning financial assets (such as real estate).

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