EU Sustainable Finance Disclosure Regulation—Impact on Private Fund Managers

As of this writing, the European Union’s Sustainable Finance Disclosure Regulation (SFDR or Level 1 regulation) is in effect from March 10, 2021 (Effective Date). US fund managers raising capital in Europe now need to make disclosures as to just how “green” and/or “social” they are. In the funds industry, mandatory disclosures under SFDR should be made on the management company level (for example, by the asset managers about their own policies) and on the product level (for example, funds’ investment strategies) through several channels: the manager’s website; pre-contractual disclosures made to investors, such as those in the private placement memorandum; and periodic reports, such as the annual financial statements of a fund. SFDR may be looked at as having two objectives: (1) to preclude “greenwashing,” and (2) to encourage “green” and/or “social” investing. SFDR encompasses a broad range of entities and products well beyond the investment management industry (including insurance and banking). This article focuses on the implementation of SFDR in the funds industry.