Calling the Bluff? - The Perspective of Nordic Private Equity Firms on the Implementation of the Sustainable Finance Disclosure Regulation

Abstract: The Sustainable Finance Disclosure Regulation (SFDR) is the first mandatory ESG regulation in the EU. Since March 2021, the regulation has imposed ESG disclosure obligations for asset managers, including private equity firms, in a pursuit to increase transparency and mitigate greenwashing in the industry. The complexity of the legislation coupled with the lack of clear guidance has led to uncertainties surrounding the SFDR. The present thesis aims to illustrate the process of compliance and identify key challenges for Nordic private equity firms. In addition, the study seeks to assess whether the regulation fulfills its transparency objective and to explore additional consequences. To understand where complexities arise, a case study of private equity firm Procuritas and its implementation of the SFDR has been conducted. The study expanded its scope by examining an additional sample of 13 Nordic private equity firms to provide a more comprehensive perspective. The study finds that all firms experience interpretation difficulties, resulting in different approaches to regulation. Additionally, data collection and resources for compliance are perceived as major challenges. Despite different applications, the regulation will standardize and improve the availability of ESG information, enabling investors to compare the sustainability efforts of private equity funds, thus mitigating greenwashing. Nordic private equity firms also recognized that the SFDR provides a structured approach to ESG and that compliance with a higher article classification can increase access to capital and increase ESG awareness at the private equity fund and portfolio company level.