Funds · Sustainability

Alfi - Lack of data main challenge for SFDR implementation

The lack of available data on company-level will be the main challenge for asset managers to deal with after the regulation for sustainability‐related disclosures in the financial services sector, better known as SFDR, comes into force in March next year, according to Alfi’s Nathalie Dogniez (picture).

From 10 March 2021, when the SFDR comes into force, financial market participants will be gradually required to disclose various sustainability indicators such as sustainability risks, negative impact indicators, portfolio alignment with the EU environmental taxonomy and impact measurement for ESG and sustainable products. But asset managers and financial advisors face implementation challenges due to a lack of comprehensive, standardised and granular data from investee companies.

‘Similar disclosure requirements do not apply for [European] companies as work to broaden the scope and standardise the requirements on Non-Financial Reporting Directive has just started and a first proposal is not expected before next year,’ notes Dogniez, who is the chair of Alfi’s sustainable finance committee and a partner at PwC Luxembourg.

And, assuming the revised directive aligns with the SFDR requirements, investors  will still only have access to the data of the companies covered by the regulation, i.e. all EU-headquartered companies with more than 500 employees. ‘As far as the data of smaller companies and companies outside the EU are concerned, that’s a question of engaging with these companies on a one-to-one basis’, said Dogniez. ‘Asset managers will have no choice but to obtain these data if the data are not complete.’

ESG focus

Dogniez recognises the European sustainability disclosure initiative could struggle in reaching its main targets of preventing greenwashing and directing sufficient investments to the green economy if the EU example is not widely followed internationally. ‘We see an increase in non-financial reporting worldwide, but it’s true Europe is well-advanced in this dimension,’ she said. ‘But there already are initiatives at international level to harmonise non-financial reporting, and I believe this will eventually happen.’

This is not necessarily because regulation will compel them do so, Dogniez believes. ‘There is an increasing focus from institutional investors and companies alike on ESG matters. Increasingly investors are looking for more data to incorporate in their decision-making process, and corporates will be responding to this by making such data available.

But in the meantime, it will be ‘challenging’ for asset managers to fulfil the requirements of the SFDR, says Dogniez. ‘The upcoming regulations are real game-changers for managers and advisers.’  ‘According to the SFDR, a financial adviser will have to consider ESG risks in their investment decisions and advice, and an upcoming amendment to the Mifid II text will include a requirement for advisers to take into consideration the sustainability preference of their clients when making an investment decision. Considering ESG risks will become part of the fiduciary duty of financial market participants.’


The availability of company data is also essential for the application of the EU green taxonomy regulation, which should inform investors whether a specific investment can be classified as environmentally sustainable. Investors are required to make quite an effort, however, to find their way in a hotchpotch of different sustainability-related deadlines. While the SFDR deadline is already in March next year, the sustainable taxonomy deadline is set only at 1 January 2022. 

These incongruent deadlines were one of the reasons Alfi appealed to the European Commission last month to postpone the application date of the SFDR to 1 January 2022, to bring it in line with the implementation date of the sustainable taxonomy.

‘For us, the taxonomy and the SFDR, as well as the transition benchmark of sustainable investments, are all pieces of the same jigsaw. You should see the taxonomy as a dictionary that provides you with a definition to be able to complete the disclosure requirements’, explained Dogniez. 

The EU taxonomy is focused specifically on environmental sustainability: an investment will be considered in accordance with the taxonomy when it contributes significantly to one of six environmental objectives identified by the Commission:

  • climate change mitigation
  • climate change adaptation
  • sustainable use and protection of water and marine resources
  • transition to a circular economy
  • pollution prevention and control
  • protection and restoration of biodiversity and ecosystems

EU Eco Label

Investment products that tick one or more of the six boxes without harming any of the other objectives will be eligible for the new EU Eco Label. Dogniez supports the creation of a pan-European label as it would facilitate distribution. ‘There are a lot of local labels now, making it difficult for asset managers to distribute on a cross-border basis.’

Dogniez, however, does not necessarily believe the EU Eco Label will replace local labels such as Luxflag, which was co-founded by Alfi in 2006. ‘We want a harmonisation of the rules governing these labels, but this could also happen through harmonisation of the existing labels,’ she says.

Social taxonomy?

The EU Eco Label is, like the taxonomy, exclusively focused on the environmental aspect. Dogniez hopes that the green taxonomy will be supplemented by a social on ‘at some point in time’, she says. ‘There is an environmental emergency right now, but we shouldn’t be forgetting about the S and also the G of ESG. My personal hope is to have a social taxonomy once the environmental one is there, which should help tackling inequality and assist socially disadvantaged communities.’  

Pierre Oberlé from Alfi added that a recent positive development on the S side is the issuance of the first bond under the EU SURE programme (Support to mitigate Unemployment Risk in an Emergency), which was established earlier this year to help protect jobs and workers across Europe. The EUR 17 billion social bond is now listed on the Luxembourg Stock Exchange. ‘The bond was 13 times oversubscribed which reflects the enormous support from the investor community for a social bond that will fight the rising unemployment in European countries stemming from the COVID-19 pandemic,’ says Oberlé.