SFDR

In recent years, social awareness on the impact humans have on the earth has steadily increased. Society has called for significant action and put pressure on corporates and governments to face the climate crisis. One aspect of the climate crisis is to steer funding into projects that promote sustainability. The European Union (EU) has set the target of a carbon-neutral Europe by 2050. Consequently, the EU has created an action plan called the EU Green Deal. A part of the action plan is to provide a legal framework that supports the objectives of the EU. Following the framework, more than a couple of regulations regarding sustainable finance have taken into force and among them is the Sustainable Finance Disclosure Regulation (SFDR).

What is the SFDR?

SFDR’s purpose is to promote transparency within the financial market for responsible and sustainable investments.

By promoting transparency regarding statements made on the financial market relating to sustainability, SFDR aims to prevent greenwashing.

That means that it should be easier to compare and recognise the difference between various sustainable financial instruments. Investors receive more reliable information on the possible positive and negative impact the financial instrument has and relevant ESG risks.

The regulation impacts financial market participants, financial advisors, investment firms, insurance, and pension providers.

What is disclosed?

The disclosure requirement is divided into two parts. One part is on an organisational level and the second disclosure on a financial product level.

Organisations need to explain how sustainability risk is integrated into their operations, this includes how sustainability risk is integrated into their remuneration policy, into the investment decision-making process and the principal adverse impact of the investments on at least 18 different sustainability factors.

Further the regulation requires organisations to categorize their investment products by articles 6, 8 og 9 within the regulation and by that a product is referred to as an article 6, 8, or 9 products based on the criteria it fulfils.

Technical matters

Different requirements are made on the disclosed information depending on the classification of the financial product.

Article 6 investment products are all investment products that are not article 8 or 9 investment products. For Article 6 investment products integration of sustainability risk into the investment decision making process needs to be disclosed. It can be disclosed that sustainability risk is not integrated but then organisations need to disclose so and explain why. Therefore, you cannot ignore sustainability risk without informing the possible investor.

IS Ríkissafn

Article 8 investment products promote, among other characteristics, environmental or social characteristics, with the mandate that the investee companies follow good governance principles.

IS Græn skuldabréf

The Fund's objective is long-term capital growth through investment in bonds issued to finance projects that promote sustainability and/or positive development in environmental and social issues. The Fund's assets will be invested in bonds listed on ICE Sustainable Bonds or First North ICE Sustainable Bonds at Nasdaq Iceland. The Fund may also invest in Icelandic Treasury bonds and bills as well as deposits at financial institutions.

Storebrand Global Plus (USD)

A fossil-free global equity fund which aims to provide long-term capital growth through a model-based portfolio of developed market equities. The fund seeks to reproduce the risk and return profile of the MSCI World Index whilst excluding companies within fossil fuel related industries and with additional ESG criteria and sustainability focus. Enhanced ESG is achieved by investing in companies with a high Storebrand sustainability rating, aligned to the UNs sustainability goals, and by avoiding those with a low rating.

Article 9 investment products are products that can be disclosed as sustainable according to the SFDR and have sustainable investment as its objective.

Storebrand Global Solutions N (USD)

A fossil-free equity fund that aims to achieve a long-term excess return by investing in global equity markets, including emerging markets. The fund invests in sustainable companies that Storebrand believes are well positioned to solve the challenges related to the UN‘s sustainability goals.

Article 8 and 9 investment products are required to fulfil the criteria of an article 6 investment product as well. Therefore, investors can compare different investments and the sustainability risk management practices clearly for different financial market participants.

Other technical matters that are good to know are the PAI statements and DNSH.

PAI (Principle adverse impact)

Financial market participant can make a statement on principal adverse impact of investments on sustainability factors. Within that statements are 18 sustainability factors that financial market participants need to try to collect information on and publish. All financial market participants that are mandated by the SFDR need to disclose whether they consider PAI and if they do, disclose the 18 metrics. If they do not consider PAI a statement needs to be made with information on why the relevant financial market participant does not consider them and when they deem likely that they will. So again, you cannot skip something without informing the possible investor.

DNSH (Do no significant harm)

Those who offer article 9 investment products need to ensure that the investee company (the company they invest in) follow good governance practices as well as ensuring the precautionary principle of do no significant harm is followed in the investee company’s operations. This is so the environmental or social objective is not significantly harmed through other activities.

This material, its distribution or publication should not be considered as a recommendation or advice to engage or not to engage in any particular investment or an offer to buy, sell or register for any particular financial instrument. Those interested in investing are advised to seek expert advice and study the various investment options available.

SFDR at Íslandsbanki

Here you can find information regarding sustainable finance (SFDR) at Íslandsbanki.

EU green deal

The EU has aims of Europe becoming the first carbon-neutral continent by 2050. To ensure its aims, the EU has published an action plan called Green Deal and has adopted a set of proposals to make the EU's climate, energy, transport and taxation policies fit for reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. Another regulation the action plan has produced is the EU taxonomy.

Do you want to know more?

EU taxonomy

The EU taxonomy for sustainable activities

The EU taxonomy is an important tool in increasing transparency on the market in terms of sustainable finance. It helps direct investments to the economic activities most needed for the transition, in line with the European Green Deal objectives. The taxonomy is a classification system that defines criteria for economic activities that are aligned with a net zero trajectory by 2050 and the broader environmental goals other than climate.

The Icelandic regulation that includes both the EU taxonomy and the SFDR came into force the 1 June 2023 and was retroactive from 1 January 2023. Companies, included within the taxonomy, in Iceland have to disclose respective metrics in their annual reports for 2023.

Íslandsbanki needs to publish a Green Asset Ratio (GAR) which discloses what percentage of the loan and asset portfolio is compliant with the EU taxonomy criteria. As Íslandsbanki needs to base its GAR assessment on reports from customers, we have currently only published a GAR of a 0% while we wait for reports.