A yardstick to measure the sustainability of all investments

Published on: 26 January 2023

Can you give a financial product a color? Yes, you can. Because that is exactly what happens as a consequence of the Sustainable Finance Disclosure Regulation (SFDR). The main purpose of this EU regulation is to combat ‘greenwashing’ by financial institutions. Mirte Bronsdijk (Senior Responsible Investment & Governance Manager) explains what this regulation means for APG.

The word disclosure already indicates what these regulations aim to achieve. Financial market participants must disclose information that shows how sustainable their financial products are. “SFDR requires all financial products we offer to be classified,” says Mirte. “There are three flavors: the gray, or Article 6 products; the light green, or Article 8 products; and the dark green, or Article 9 products. These are the three levels of sustainability, from gray (not sustainable) to dark green (100 percent sustainable). Of course, there are quite a few market participants that use the term ‘sustainable investments’. But according to SFDR, you are no longer permitted to do this if your products do not comply with the strict definition of sustainable investments. If you do, you may be guilty of greenwashing.”

How does this affect APG and its pension fund clients?

“We have recently assessed all our financial products with the SFDR yardstick. These include the investment pools in which our clients participate and the investment mandates in which they invest individually. On March 10, 2021, for the first time, market participants including APG and our clients, were required to post information about the sustainability of their financial products on their websites in line with SFDR.”


SFDR has been around for a while. So what exactly is new as of January 1?

“The further detailing of SFDR ('level 2’ regulations) was still work in progress on March 10, 2021. Everything we posted on our website on March 10, 2021, was based on the ‘level 1’ regulations and on what we knew then. Between then and now, the European Commission (EC) and our regulator, the Financial Markets Authority (AFM), provided more clarity, and in mid-2022 ‘level 2’ was established. Those regulations apply as of 1 January 2023, and impose more detailed requirements than 'level 1'.”


What changed on January 1 in terms of the SFDR information on apg.nl?

“We have recently been working on a separate Asset Management environment on our website, with a dedicated section for SFDR information. This is because the regulations also clearly state that we must present sustainability information about our financial products on our website in an accessible, readable and navigable way."


In addition to preventing greenwashing, the SFDR should also make it easier to compare sustainable financial products. APG, however, has no retail clients. Who is this information intended for?

“These regulations apply both to us and to our pension fund clients. For APG, this is the first time that we have posted so much information on individual financial products on our website. One of SFDR's main goals is to prevent greenwashing. Previously, each asset manager took a different approach to presenting products as ‘sustainable’, ‘green’, ‘responsible’, and so on. SFDR defines what a sustainable investment is. However, as it is up to market participants to further flesh out elements of this definition, you still get different interpretations. Therefore, I don’t know if comparing sustainable financial products has become easier since January 1.”

It’s not that easy to acquire information on, say, the gender pay gap at a Chinese company

How are APG’s products classified?

“APG has classified all investment pools as gray or light green. Light green, which covers the majority of our investment pools, means that an investment promotes environmental and social characteristics. Dark green products exclusively contain sustainable investments as defined by SFDR, while light green products may, but need not, contain sustainable investments. We have not yet classified any investment as sustainable, mostly because much of the required sustainability information about the investments is still lacking.”


APG presents itself as a responsible investor. So why does it still have gray products?

“For a financial product to be classified as light green, it must promote environmental and social characteristics, as well as meet minimum requirements of good corporate governance. If one or both conditions are not met, it does not meet the requirements of a light green product and must be classified as gray. Some of APG’s investment pools do not meet one or both of these conditions. For instance, because at the time of its creation, the conditions that SFDR now sets for a light green product were not agreed with the managers of the investments. Therefore, these products are classified as gray.”

Will the regulations also be enforced?
“In November 2022, AFM published investigations into compliance with SFDR requirements by financial parties, including asset managers and pension funds. I expect AFM to also assess compliance with the SFDR 'level 2' obligations.”


SFDR is a European regulation. What about investments outside the EU?

“The rules apply to our entire portfolio. SFDR requires us, for example, to make data available on 18 mandatory sustainability indicators for all underlying investments of all our financial products. These indicators range from carbon emissions to the gender pay gap. Of course, our portfolio is so diverse and large that it is quite a challenge to gather all the required data for all our investments. It’s not that easy to acquire information on, say, the gender pay gap at a Chinese company.


Outside Europe, rules are also being established. For example, comparable legislation is already in place in the United Kingdom, and the United States is also working on regulations. In any case, we must now proactively indicate to the companies we invest in that, as a European institutional investor, we are required to disclose sustainability information. In that sense, SFDR is a great help.”