ESG: Sustainable Finance Disclosure and Climate Risk
What this domain tests
ESG tests sustainable finance disclosure, climate risk and greenwashing controls. Expect SFDR classifications, the EU Taxonomy, CSRD reporting, climate scenario analysis and stewardship.
Core rules
- SFDR Article 6 products do not promote environmental or social characteristics; Article 8 products promote them; Article 9 products have a sustainable investment objective.
- Article 8 and 9 disclosures cover pre-contract information, website disclosure and principal adverse impact indicators where applicable.
- The EU Taxonomy requires a substantial contribution to an environmental objective, do no significant harm, and minimum safeguards.
- CSRD applies double materiality: financial materiality and impact materiality, with assurance over reported sustainability information.
- Climate risk splits into physical risk and transition risk; scenario analysis should cover short, medium and long horizons.
- Stewardship includes voting and engagement; greenwashing is a conduct and disclosure risk.
Worked example
A fund excludes tobacco and promotes carbon reduction but has no sustainable investment objective. It is Article 8, not Article 9. It must disclose how the environmental characteristic is met, report relevant adverse impact indicators and state taxonomy alignment, which may be 0%. Calling it Article 9 without a sustainable objective and supporting evidence is greenwashing. The distributor must also ensure marketing claims match the pre-contract disclosure.
Traps
- Treating every exclusion fund as Article 9.
- Assuming an ESG rating is a regulatory classification.
- Ignoring do no significant harm.
- Double counting taxonomy alignment.