Green Funds : An Analysis of the Product Specific Disclosures of the EU Sustainable Finance Disclosure Regulation 2019/2088

Abstract: Sustainability has started to play a greater role on the financial market and a larger number of investors are searching for financial products that contribute to the environment and the sustainable development. However, the numerous definitions of sustainable investments and green funds make the investment decision-making process difficult for investors and allow companies to “greenwash” their products. In order to facilitate the investment process for investors and at the same time contribute to sustainable development, the EU adopted the Sustainable Finance Disclosure Regulation (SFDR) on 10 March 2021 as part of the Union’s sustainable finance strategy. The SFDR introduces a set of harmonized rules for financial market participants regarding their integration of sustainability-related aspects in their investment process, including different product classification levels, such as “light green” and “dark green”. Apart from the fact that the regulation means enhanced transparency, it is possible that the new product classifications will have an impact on the definition of sustainable funds and the environmental, social, governmental (ESG) investment strategies currently used by financial market participants. Additionally, the appropriateness of the new product classes in view of the aims of the SFDR could be discussed. The purpose of this thesis has been to examine the product specific disclosures of the SFDR and their implications on funds integrating sustainability, by using the legal dogmatic methodology and the EU teleological methodology. In order to be classified as an art. 8, or light green, it seems as if it is not enough for a fund to simply integrate ESG aspects into the investment process, rather the fund has to apply several investment strategies that consider ESG. For funds wishing to be considered as an art. 9, or dark green, it appears as if impact investing or sustainability themed investing could be two applicable approaches. Moreover, the sustainable investment-definition provided by the regulation contains explicit criteria, thus making it easier for investors to understand sustainable investments. Furthermore, the increased regulation and reporting requirements might contribute to less greenwashing, which in turn will benefit the UN’s Sustainable Development Goals and the Paris Agreement. However, while the product specific disclosures appear to be aligned with the objectives of the SFDR, there are several uncertainties related to the definitions and classifications that prevent the regulation from fully achieving its goals.