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SFDR and the EU Taxonomy: How to Meet and Exceed Active Ownership Expectations

On 7 March 2018, the European Commission released its well-known Sustainable Finance Action Plan (SFAP). Aiming to promote sustainable investment across the 27-nation bloc, this is a major policy objective by the European Union.

Two of the most important initiatives in this action plan are the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy. In this blog post, we address the role of active ownership in these regulations, and how investors can meet and exceed the requirements.

Active ownership is an important strategy for investors in furthering their asset stewardship. In the EU, from a legislative perspective, the Shareholder Rights Directive (SRD II) regulates and establishes investors’ requirements here. Currently, it requires institutional investors and asset managers to disclose, on a comply or explain basis, their engagement policy.


Since 10 March 2021, funds available for sale in the EU have been classified as Article 6, 8, or 9, depending on their sustainability strategy. In the second quarter of 2022, assets in Article 8 and Article 9 funds surpassed 50% market share. However, with less than half of surveyed Article 8 and Article 9 funds having reported their PAI consideration and sustainable investment exposure, the data is, at the moment, patchy at best.

Active ownership requirements

Generally, investors engage with companies on different criteria of the SFDR, such as:

  • sustainability risks (financial materiality perspective),

  • sustainability factors (stakeholder impact perspective - PAIs), and

  • the ‘Do no significant harm’ (DNSH) objective.

The delegated regulation specifies the exact content, methodology and presentation of the information to be disclosed. On entity level, SRD II requirements apply with associated obligations to disclose an engagement policy and annual updates on its implementation, and how material votes were cast. For entity and product-level PAI statements, and in periodic reporting, engagement policies should be included, with activities applicable as ‘Actions taken’ to address specific PAIs. Where there is no reduction of the PAIs over more than one reference period, it should be explained how those policies will be adapted, including targets and actions planned.


There’s been no shortage of press lately around the EU Taxonomy. Following the parliament’s decision to include natural gas and nuclear, effectively labelling them as environmentally sustainable economic activities through the taxonomy, in the eyes of many, it has lost its credibility and scientific rigor.

Be that as it may, many still believe the taxonomy will help to scale up sustainable investments in Europe by reallocating capital into the right type of assets, projects, and companies while combating greenwashing.

Active ownership requirements

There are no such requirements in the Taxonomy’s objective, however, investors still believe that engagement is an important, if not critical tool, to increase alignment amongst portfolio holdings.

Here are a few ideas you might want to consider:

  • create a set of taxonomy-related ratios as a basis for engagement, such as a company’s aligned vs eligible activities (proxy for transition willingness),

  • engage with investees to increase alignment of economic activities,

  • address indications of non-compliance or risks of breaching minimum safeguards and do no significant harm criteria.

  • reference the taxonomy to non-EU-NFRD firms, requesting disclosure alignment for peer analysis purposes.

Exceeding expectations

With evolving stewardship expectations globally, investors are certainly encouraged to move beyond minimum regulatory requirements to show leadership and best practice. A good place to start would be to consider the UK stewardship code, which tends to influence investor practices globally, as well as regional hard and soft law initiatives.

See below for a few recommendations. While it’s nothing groundbreaking, they do represent a direction of travel aligned with the perspectives of the PRI and UK’s FRC:

  • Consider your sphere of influence, meaning ensure a thoughtful approach to engagement also with non-issuer stakeholders, such as regulators.

  • Increase transparency, meaning communicate how your stewardship strategy is implemented, governed, resourced, and incentivised.

  • Think bigger, meaning use your investment and stewardship powers to address system-level issues.

  • Join forces, meaning collaborate more to increase influence and legitimacy.

How Esgaia can support your strategy

Esgaia’s software can help you implement and enforce a solid approach to engagement management across your teams. For example, to support actions taken on specific PAIs, you can tie these to engagements and establish related objectives for progress monitoring. And if there is little to no progress over a reference period, you could choose to highlight activities as part of an escalation process using a custom field (available on company, engagement, and activity level). All engagement information then trickles through to an analytics tab to support your entity and product-level disclosures.

//The Esgaia team


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