EU’s new ruling on sustainable finance ‘must go further’

Written by Molly Scott Cato on 10th Mar 2021

The European Union’s landmark new Sustainable Financial Disclosure Regulation comes into effect from today (March 10). The new legislation aims to hold financial providers to account over how sustainable their products really are, and therefore help to combat  ‘greenwashing’. 

Here, Molly Scott Cato, former Green MEP and Professor of Economics and Finance at the University of Roehampton, says greater transparency into the environmental impacts of financial products is long overdue, but the new regulation must go further to protect the climate.


The significance of the Sustainable Finance Disclosure Regulation (SFDR) coming into force cannot be overstated, and is a very important step forward towards more transparency of the environmental, social and governance (ESG) impacts of investments.

This long-overdue regulation will finally allow people who buy pensions and investments to know what their money is being used for and provide them with a better understanding of the impact of their investments on people and the planet.

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When people found there was horsemeat rather than beef in their lasagne in 2013 there was an outcry1, but when the equivalent happens in the financial sector, as it has for years, customers don’t even have the right to know. SFDR will have a big impact in changing this. We cannot but welcome the fact that from 10 March, investment and pension firms will have to expressly disclose the impacts of their investments, thus improving transparency.

‘It must go further’

However, the regulation must go further. While negotiating the SFDR as shadow rapporteur for the Greens-EFA Group in 2018, I was deeply disappointed that the EU Council allowed a ‘comply or explain’ exemption. This avoids full transparency, since smaller firms can refuse to disclose so long as they give a reason why. However, even in the current form, we cannot deny the regulation’s merits and the fact that it is a clear signal of a shift towards a more transparent and open financial industry.

The priority for SFDR disclosure is protecting the climate, since rapidly advancing global targets for net zero carbon emission by 2050 mean investments bought today that include fossil fuel assets will simply have no value in a few years’ time. People investing their money today are deeply concerned about the environmental and social impacts of the companies their money is entrusted to. SFDR being made a legal requirement will bring much greater transparency into how their money is being invested and its social and environmental impacts.

The need for regulation

As an example, as an MEP, I met survivors of the Fundão dam disaster2 in Mariana, Brazil, a classic case of the damage caused to people’s lives when corporations, and banks who finance them are not adequately regulated. Even today, HSBC and BNP Paribas continue to finance the mining company involved in the disaster – Samarco Mineração SA (Samarco) – yet many of those who have pensions or investments with these banks did not know their money was being invested in companies whose weak safety standards resulted in the loss of many lives and the devastation of precious environments.

Although not perfect, SFDR will hopefully help shed some lights into matters like this and contribute to creating a more responsible investment attitude in the financial sector.


1 https://www.bbc.co.uk/news/uk-21375594

2 https://www.theguardian.com/world/2018/feb/28/brazil-dam-collapse-samarco-fundao-mining