What is SFDR? (2024)

What is SFDR?

SFDR is a new EU regulation which will ensure more information on how investment funds incorporate sustainability risks and take into account the main negative impacts of sustainability factors in their investments. The purpose of the regulation is to ensure greater transparency for investors.

In line with the EU regulation all funds are now classified into three categories depending on their approach to sustainability:

Article 9
Funds which have sustainable investment as their goal - also called "dark green" funds. The funds invest in companies that aim to contribute to a more sustainable society.

Article 8
Funds with specific sustainability criteria that promote environmental or social conditions - also called "light green" funds.

Article 6
Funds where sustainability risks are integrated into investment decisions, without the fund promoting environmental or social characteristics or targeting sustainable investments.

Principal Adverse Impact on sustainability factors

The Sustainable Finance Disclosure Regulation (SFDR) defines sustainability factors as environmental, social andemployee matters, respect for human rights, anti-corruption and anti-bribery matters. Principal adverse impactis generally understood to mean the negative impact, caused by an investment decision or investment advice, onthese factors.

Nordea Investment Management AB and Nordea Investment Funds S.A. (jointly referred to as Nordea Asset Management, NAM), has together with Nordea Funds Ltd written a statement to describehow we consider principal adverse impacts (PAI) of our investment decisions onsustainability factors, as per Article 4 of the SFDR.

View the statement here

Sustainability Risk Integration in the Investment Decision-making Process

The Sustainable Finance Disclosure Regulation (SFDR)defines sustainability risk as “an environmental, social orgovernance event or condition that, if it occurs, could cause an actual or a potential material negative impact on thevalue of the investment

We recognise that integration of environmental, social and governance (ESG) issues into the investment decision-making process forms part of our fiduciary duty towards customers and stakeholders. In order to ensure that investment decisions are based on comprehensive information, we seek to integrate ESG aspects into our investment analysis. Since ESG aspects can have both negative and positive impact, they can be used to identify investment opportunities as well as sustainability risk.

How sustainability risk is integrated in the investment decision process

We believe that including sustainability risks in the investment decision process can enhance the risk-adjusted returns of the portfolios. Nordea Funds and NAM integrate sustainability by

• Ensure portfolio managers and analysts have access to relevant ESG information, making it possible to identify sustainability risks within the investable universe.
• Include and consider sustainability risks as part of investment evaluation, in line with our belief that integrating such considerations into the investment decision making process can lead to better long-term, risk-adjusted returns.
• Identify, evaluate and take relevant action on issuers exhibiting high exposure to sustainability risk.

Read more about how we integrate sustainability risk in our decision-making process.

Integration of sustainability risks in remuneration

Sustainability risks are not only integrated in our investment processes, but also a natural part of our remuneration models to cater for commitment and engagement in sustainability among our employees. Sustainability risk is integrated in our remuneration polices on different levels. Both in the design and long term perspectives of the remuneration structure, but also in relation to how we govern remuneration policies and decisions internally in a sustainable way.

Read more in the document "NF Integration of sustainability risk in remuneration"