New SFDR Standards Highlight 3 Key Reporting Challenges

New SFDR Standards Highlight 3 Key Reporting Challenges

Our recent report on the EU regulation of sustainability-related disclosures in the financial services sector – the Sustainable Finance Disclosure Regulation (SFDR) – describes how firms are struggling in the transition to comply by this expansive body of rules.

With the final regulatory technical standards (RTS) coming into force in January 2023, financial services firms both inside and outside the EU will be preparing for, and following, detailed rules related to product descriptions, firm- and product-level materiality reporting, and sustainability risks. Our research identified three core challenges companies face in this reporting:

1. limited sophistication of sustainability-related data
2. gaps and limitations in the required data availability and accuracy 
3. a lack of experience with SFDR requirements

SFDR requirements are forcing firms to ramp up their resources to ensure they meet the need for accessible, consistent, and reliable investor-grade sustainability data. For instance, the SFDR stipulates that firms will have to disclose activities that negatively impact biodiversity in sensitive locations. Ultimately, biodiversity measurement is nascent, with little methodological consistency in collecting, aggregating, and assessing data. Therefore, firms are on the hunt for solutions that can provide of this kind of data, and experts to analyse and report on it.

Verdantix has explored software solutions that have specific SFDR capabilities. We identified three types of providers: financial data management platforms, financial and climate information providers, and ESG reporting solutions with SFDR-relevant capabilities. Each group includes vendors with extensive SFDR experience and reference clients in the financial services industry.

Clients can read more on the challenges and vendors in our report Verdantix Market Insight: New SFDR Requirements And The Supplier Landscape.