Sustainability Disclosure in the EU Financial Sector

This chapter analyses and discusses the European Union (EU) Sustainable Finance Disclosure Regulation (SFDR). The aim is twofold. On the one hand, it explores the main features of the SFDR. On the other hand, it tries to assess whether the SFDR is likely to succeed in harmonizing sustainability-related disclosure rules and fiduciary duties, not only across Member States, but also across financial products and distribution channels. The author concludes that there is still a long way to go. Research shows that the phenomenon of greenwashing is still widespread among investment funds. Also, the EU is not an island. The author argues that there are roughly two opposite scenarios. In a pessimistic scenario, the more lenient or even non-existent sustainability agenda of other geopolitical powers gives them a competitive edge that is detrimental to the EU. In a positive scenario, the EU becomes a global standard-setter in the area of sustainability. The USA’s re-entry in the Paris Climate Agreement under the Biden Administration and its success in delivering a climate bill as part of the Inflation Reduction Act (IRA) may give us some hope. Finally, on 9 December 2022, the UK Government announced a major reform of its financial services regulation ‘to drive growth and competitiveness in the financial services sector’ (the Edinburgh reforms). In this context, the UK Government ‘is ensuring that the financial system plays a major role in the delivery of the UK’s Net Zero target and is acting to secure the UK as the best place in the world for responsible and sustainable investment’. Will these developments contribute to the EU becoming a global standard-setter in the area of sustainability? Time will tell.