The Sustainable Finance Disclosure Regulation (SFDR) sets concrete disclosure requirements for financial market participants and financial advisors and allows investors to compare the ESG performance of financial products and evaluate risks.
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The SFDR outlines what financial entities have to disclose 
to their clients, including how they integrate sustainability factors into their decision-making regarding financial products and what adverse impacts those products have.
SFDR includes precise requirements for financial products that market with ESG characteristics or label themselves as a sustainable investment.
The aim of the SFDR is to increase the transparency of sustainable investment products and sustainable claims in the financial market.
The Sustainable Finance Disclosure Regulation is part of the wider ESG regulation in the EU, increasing 
ESG transparency and helping investors navigate sustainable investment choices. The SFDR labels products under three categories, depending on their ESG impacts, which are defined in articles 6, 8 and 9:
Analyse your scope 1 and 2 emissions, including energy consumption and mobile combustion, as well as administrative emissions in scope 3 such as purchased goods and services, water and waste from your office buildings and business travel.
Products promoting environmental or social 
(or a combination of both) characteristics and 
the companies in which the investments are made have good governance practices in place (sound management structures, employee relations, staff remuneration, tax compliance).
Products with a sustainable investment objective that is non-financial, such as:
EU sustainable finance disclosure regulation applies to financial market participants and financial advisors in the EU (banks, insurers, asset managers and investment firms), including financial market participants with EU shareholders as well as those that promote themselves in the EU.
The reporting requirements for SFDR follow precise formats and differentiate between companies and products. The SFDR obligates participants to publish the data on their websites in an allocated section as well as in pre-contractual information and covers three reporting categories:
From 1 January 2022 financial investors must report PAIs (Principal Adverse Impacts) on mandatory sustainability 
factors as well as:
From 1 January 2022 financial investors must report 5 PAIs related to GHG emissions of their investees:
The EU sustainable finance disclosure regulation came into effect in March 2021, however, Â some requirements will start gradually, such as the reporting on Scope 3 GHG emissions from 1 January 2023.
Disclosure on the websites and 
in pre-contractual information becomes mandatory.
Disclosure about standard financial products becomes mandatory.
Delegated Act with disclosure details (e.g. sustainability indicators to measure) becomes mandatory.
All suggestions for the Delegated Acts including the disclosure details published.
Disclosure about standard financial products becomes mandatory.
The European Supervisory Authorities provide methodologies and templates for the disclosure in their Final Report on draft Regulatory Technical Standards. In total, the SFDR includes 64 indicators, 18 are mandatory. In addition, participants have to report on at least 2 optional indicators. For the reports and calculations, financial entities need to thoroughly collect internal data and measure their ESG impact.
