The scope of the regulation and SFDR mandatory indicators begins onshore and broadens its coverage to include international financial services markets in the near future. The European Commission is committed to improving business practices, social responsibility and environmental protection; promoting the highest standards in all related activities, including investment management.

Moving forward with the exploitation of today’s opportunities, the commission can only hope to play a more meaningful role and one of the measures is to tighten the screws on greenwashing with SFDR mandatory indicators. Greenwashing is the practice of faking or trying to demonstrate higher social responsibility than is actually encoded in the calculation of already minute costs and risk. In the case of becoming a eco-friendly sustainable business, this is making false claims about how the business is making efforts to reduce their emissions.

As a journalist, I would bet that the vast majority of the people reading this article are naïve to this term because they have never heard of greenwashing. They expect all financial advisers, financial planners and fund managers alike to be able to achieve such lofty standards in their own behaviors when actually the opposite is true.

These underhanded behaviors and misperceptions by some financial service professionals and agencies have undoubtedly until now been beyond any definition of what a “green act” is until the introduction of the SFDR mandatory indicators.  Beginning as early as 2005, the green act was promoted heavily with investment advertising. This meant that investment firms could more readily market and sell their financial services in an environment in which they could fake green. Wouldn’t that be a spectacular model for their daily operations – green asset management, which is a behaviour that people on the other end of the planet would notice?

This is why we need more stringent standards and those with serious intent and not merely codes of conduct, and as such the EU taxonomy and the SFDR mandatory indicators aim to provide those standards. The EcoFinance Street is committed to supporting healthy investment in clean technologies, cleaner processes, and wiser consumption.

The SFDR mandatory indicators warrant that; care must be taken to ensure compliance (i.e definition) with this regulation, taking into consideration a range of relevant standards, and the 1999 standard plus EU directive 2000/53/EC, Together with the EU directive 2009/45/EC on the climate framework adopted by the EU – these four standards alone define the minimum level of what is acceptable and sustainable like in terms of green governance. Even with such a high standard of green practices these financial advisors very manually work with clients based on non-pepper-spraying policies that could result in poor client relationships and poor returns on investment.

The European Commission has confirmed that the scope of the SFDR mandatory indicators and accompanying regulation is far reaching for a number of countries, covering all ’emerging markets’ and even some nations which are de facto E Fresher countries.

Having helped small firms with compliance policy and risk management for over three decades, we have first-hand experience with risk and regulation. Additionally our team of specialist risk controllers has never seen anything like this in a larger organisation in our life-time relationship with clients and detailed projections based on historical trends of fraud and flurry of litigation. It was met with store-house exchanging of arms and groans by most financial service firm practitioners.

So, we have seen the Regulatory Impact of the SFDR mandatory indicators far exceed the benefits. Let us call this regulation a set of good intentions – a quick fix of simple compliance done to send the message out that the investment agents and financial planners can be trusted.

However, SFDR mandatory indicators are about more than mere compliance alone. The real reason for this particular regulation is rather simple; if the regulators want to synchronize legal requirements with effective risk management and governance, then they need to think of the ethical and pragmatic issues that otherwise might not be hard with the international standard of good governance.

The diversification is about a new way of providing transparency in nature of risk and being considered for use by the market. Risk management controls your capital, or asset, portfolio, sale, and so on. It is meant to provide a lasting framework for a two-way reconciliation of trust between the investor/ fund manager and the firm. In conforming with this, the firm must obtain a clear, easily understandable, easy to understand and consistent method of compliance.