SFDR regulation

The SFDR is part of the wider Sustainable Finance Action Plan and European Green Deal, which are specifically aligned with the Paris Agreement. This seeks to limit global warming to maximum 2 °C above pre-industrial levels by 2100, and more ideally to limit it to 1.5 °C.

The 1.5 °C target requires the world to achieve net zero emissions by 2050. However, we are currently way off track from meeting it. The latest climate research shows that the world has already warmed by 1.2 °C – and possibly even more – with carbon emissions still rising. If left unchecked, the world will warm by around 2.4 °C by the end of this century, a level that could cause catastrophic and irreversible climate change.

Subsequently, the race is on to find ways to cut reliance on fossil fuels, move to renewable sources of energy, electrify key areas such as transport, and find more sustainable forms of construction. It requires a transition to a low-carbon economy that is unprecedented in human history, requiring trillions in investment capital for the solutions to the global problem.

Robeco has therefore developed a whole repertoire of potential investment solutions, from bespoke transition investments and funds looking at Smart Energy, to Paris-aligned benchmarks, strategies targeting the Sustainable Development Goals (SDGs), and targeted decarbonization products. All are backed by decades of experience in integrating ESG into the investment process, with a heightened focus on the environmental aspect, as climate change is tackled head-on.

Rather than viewing the SFDR as more red tape regulation, most investors have embraced it as achieving three main goals. First, it creates an agreed framework for a sustainable investment, with clear definitions behind the three articles. Investors within the EU can no longer interpret legislation at will, as many such interpretations have been conflicting or prone to greenwashing in the past, where the true contribution to net zero is overstated.

Second, the articles make clear what levels of sustainability the investments contain, providing the investing public with greater confidence and clarity. The Robeco Global Climate Survey 2024 highlighted greenwashing as one of the biggest fears that investors have when it comes to sustainable investing.

In total, the articles have provided a backdrop for what a UK advertising campaign once described as ‘It does what it says on the tin’. An Article 8 fund does attempt to contain some element of sustainability, whereas an Article 6 fund does not try to.