Review of SFDR Article 9 Funds by the Swedish FSA

The Swedish Finansinspektionen has reviewed 30 Swedish-registered UCITS- and special funds with sustainable investment as their goal (SFDR article 9 funds). The review results and conclusions were published in a report of 9 September 2022. It is the first review of SFDR article 9 funds by the Swedish financial supervisory authority.

Finansinspektionen analyzed how fund managers met the requirements for providing sustainability-related information to investors. Focus has been on the implementation of the requirements for pre-contractual disclosures in SFDR article 6 and 9 as well as the supplement requirements in article 5 of the Taxonomy Regulation.

The report highlights some of the following observations:

• Some of the funds do not only have sustainable investment in their portfolio despite this being a requirement for SFDR article 9 funds.
• In relation to the “sustainable investment” objective (SFDR article 2(17)), some funds have not provided necessary and clear information about what social and environmental goals they contribute to through their investments or how the goals must be achieved. Further, not every fund has confirmed that their investments do not cause significant harm.
• In relation to SFDR article 6, information about how sustainability risks are integrated into investment decisions needs to be clearer. Also, most funds have not provided a clear or specific description of the results of the assessment of the likely impacts of sustainability risks on the funds returns.
• Fund managers have not in clear ways described how sustainability risks are integrated into investment decisions or the likely impact of sustainability risks on fund returns.

In general, the sustainability-related information given has occurred unclear and difficult for investors to understand and use for fund comparison. Finansinspektionen has underlined that information must be fund specific, sufficient details on how the sustainability risks are integrated must be given as well as information about the possible effects of sustainability risks on the return. Further, they emphasize that the provided information is expected to be correct, fair, clear, not misleadning, easy to understand and concise for end investors.

Finansinspektionen concludes there is room for further improvement and development. In this relation, fund managers have an important role in providing the necessary information and making sure that underlying investments meet the requirements. Further, Finansinspektionen encourages the industry to collaborate and do joint assessments when filling out disclosure templates set forth in the Commission Delegated Regulation (EU) 2022/1288 to be more uniform.

In conjunction with the Danish assessment of certain pension companies’ and credit institution’s website disclosures regarding their integration of sustainability risks in the investment decision process (so-called “art. 3 disclosures”) (see more here). Finansinspektionen’s conclusions and remarks indicates a direction for the financial supervisory authorities’ focus and approach within the SFDR-regime.

Finansinspektionen’s full report can be found here.

Tags:  Sustainability