Sustainable Finance Disclosure Regulation

The shift towards sustainable finance is transforming the European financial landscape, with transparency and accountability and ESG integration at the core of investment decision-making. The Sustainable Finance Disclosure Regulation (“SFDR”) Regulation (EU) 2019/2088, together with its Regulatory Technical Standards (“RTSs”), imposes disclosure obligations on financial market participants and financial advisers operating across the EU, including those established in Malta.

The SFDR requires firms to disclose how they integrate environmental, social and governance (“ESG”) factors into their investment decisions and advisory processes. Its objectives are to:

• Enhance transparency in the market for sustainable investment products.
• Prevent greenwashing and ensure comparability for investors.
• Encourage the flow of capital towards more sustainable businesses and activities.

Under the SFDR, firms must comply with obligations at entity level and product level. Disclosure at entity-level include policies on the integration of sustainability risks, consideration of Principal Adverse Impacts (“PAIs”) of investment decisions on sustainability factors. Disclosure at product-level include re-contractual and ongoing reporting requirements for financial products, including classification under Articles 6, 8, and 9.

Under SFDR, financial products are classified based on their sustainability characteristics: Article 6 products do not integrate sustainability risks or provide an explanation if such risks are not relevant; Article 8 products (“Light Green”) promote environmental or social characteristics, provided the investee companies adhere to good governance practices; and Article 9 products (“Dark Green”) have sustainable investment or carbon reduction as their explicit objective.

Larger financial market participants are required to publish a statement on their due diligence policies regarding the principal adverse impacts of their investment decisions on sustainability factors (such as greenhouse gas emissions, biodiversity, water usage, and social indicators). These disclosures are key to ensuring accountability and investor confidence.

The SFDR operates alongside the EU Taxonomy Regulation, MiFID II sustainability amendments, and the Corporate Sustainability Reporting Directive (“CSRD”), forming part of the EU’s broader sustainable finance package. Firms in Malta must therefore consider how SFDR obligations align with these related frameworks.

At Zerafa Advocates, we assist financial market participants, financial advisers, and asset managers in meeting their SFDR obligations by offering:

• Regulatory Scoping and Applicability: Assess the applicability of the SFDR to your entity and products, including Article 6, 8 and 9 classification and interaction with the EU Taxonomy Regulation.
• Disclosure Review and Drafting Support: Draft and review pre-contractual, website and periodic disclosures to ensure full compliance with SFDR RTS requirements and consistency across investor communications.
• Greenwashing Risk Management: Identify and mitigate greenwashing exposure by aligning sustainability claims, marketing materials and portfolio strategies with regulatory expectations and supervisory guidance.
• Governance and Policies: Design and implement robust sustainability governance frameworks, including policies on sustainability risk integration, PAI due diligence, remuneration alignment and board oversight.

Why Malta?

As an EU Member State with a dynamic financial services sector, Malta offers a strategic platform for asset managers and investment firms seeking to align with EU sustainable finance regulations. The MFSA has placed sustainable finance high on its supervisory agenda, making timely compliance a priority for firms operating from Malta.