Report
Bridging the Data Divide: An analysis of market practice to strengthen engagement disclosures under the Sustainable Finance Disclosure Regulation
The Sustainable Finance Disclosure Regulation (SFDR) was introduced to enhance transparency and improve sustainability disclosures by financial market participants. It has been instrumental in raising awareness of the negative impacts of investments on people and the planet but has not yet succeeded in fully delivering on its intended goals, including to prevent greenwashing, reduce negative impacts, and channel capital towards sustainable investments.
The SFDR requires financial market participants to disclose information on the sustainability risks and negative impacts of their investments at both the firm-wide (entity) and product levels. Despite enhancing transparency, product-level disclosure requirements have been misused as labeling tools and disclosures at both the product and entity levels remain uneven.
As the European Commission prepares to present its proposal for the review of the SFDR at the end of 2025, our new report assesses the quality of engagement and due diligence disclosures by 30 asset managers operating in the EU and how they meet SFDR's regulatory requirements. These disclosures were selected given their importance in assessing how credibly asset managers use their leverage to reduce the negative impacts of their investments, which is essential to channel investments away from harmful activities and into Europe's transition to a more sustainable economy. The report highlights leading practices, demonstrating that better disclosures are feasible, alongside evidence of where asset managers still fall short of providing instructive information.
Based on our findings and current market practices, we set out the following policy recommendations to inform the SFDR review:
- Uphold and streamline entity-level engagement disclosures
- Introduce engagement disclosure requirements across new product categories
- Improve accessibility of disclosures