There are three different product categorisations for the EU SFDR:
- “Article 6” products either integrate environmental, social and governance (ESG) risk considerations into the investment decision-making process, or explain why sustainability risk is not relevant, but do not meet the additional criteria of Article 8 or Article 9 strategies.
- “Article 8”products promote social and/or environmental characteristics, and may invest in sustainable investments, but do not have sustainable investing as a core objective.
- “Article 9” products have a sustainable investment objective.
The EU SFDR requires specific firm-level disclosures from financial institutions regarding how they address two key considerations: Sustainability Risks and Principal Adverse Impacts (PAI). With regards to financial institutions, the EU SFDR also mandates transparency of remuneration policies in relation to the integration of sustainability risks. In addition, the EU SFDR aims to help investors to choose between products by mandating increasing levels of disclosures, depending on the degree to which sustainability is a consideration.