Sustainable Finance Disclosure Regulation
What is SFDR?
Sustainable finance disclosure regulation (“SFDR”) is part of the EU’s wider Sustainable Finance Framework, which is backed by a broad set of new and enhanced regulations. It requires investment funds to assess and disclose environmental, social and governance (“ESG”) considerations publicly. The purpose of the regulation is to ensure greater transparency for investors. The regulation officially came into effect on 10 March 2021, with a continuous timeline of various disclosure obligations through 2021 to 2023.
The most recognisable part of SFDR is the self-classification of products into three categories:
- Article 6: Products that do not integrate ESG considerations into the investment decision-making process or explain where the integration is not relevant, where products do not meet the criteria of Article 8 or 9
- Article 8: Products that promote environmental and or/social characteristics, amongst other characteristics, and portfolio companies have good governance practices. This implies that ESG investing is not core to these products
- Article 9: Products that have sustainable investment as their core objective
How does SFDR affect my fund managed by Slater Investments?
We have categorised the following Slater Investments Funds as Article 8 Funds:
- Slater Growth Fund
- Slater Recovery Fund
- Slater Income Fund
Slater Investments’ Approach
We believe that the integration of ESG issues into our investment process with the aim of improving standards, reducing risk and enhancing returns is essential. We therefore use an integrated sustainable investment approach, where ESG screening is incorporated into the fundamental analysis of companies across our funds. We consider ESG analysis to be a complementary tool to the fundamental research where we undertake to understand, with a high degree of conviction, a company’s earnings and growth potential.
We are now required to disclose how ESG risks are considered in the investment making process, with increased disclosure requirements for funds that label themselves as having a specific sustainability objective. We are also required to consider principal adverse impacts (“PAI’s”). PAIs are negative, material or potentially material effects on sustainability factors that result from or are directly related to investment choices or advice by a legal entity. These indicators range from greenhouse gas emissions to exposure to controversial weapons.