Sustainable Finance Disclosure Regulation (SFDR) Gap Analysis

The Sustainable Finance Disclosure Regulation (SFDR), the EU Taxonomy (EU-T) and the Non-Financial Reporting Directive (NFRD) are key elements of the Sustainable finance supporting the European Green Deal. Investors, managers and asset operators in Europe will have to report in accordance with SFDR/NFRD and use the EU Taxonomy for the labelling of green investment schemes. These regulatory requirements apply to Financial Market Participants (FMPs) in the EU and to financial products sold in the EU. This includes private market and listed real estate funds and infrastructure companies and funds.

Financial market participants will be required to disclose against SFDR and EU-T by 1 January 2022. GRESB will play an active role in gathering and making the SFDR-aligned data available to both GRESB Participants and Investors.

GRESB has conducted a mapping to the Principle Adverse Impacts (PAI) disclosed in the Final Report on Draft Regulatory Technical Standards  (Annex 1) released on the 2nd of February 2021. The results indicate that mandatory indicators align 76% for the Infrastructure Assessment and 46%* for Real Estate. Note that clarifications from the European Commission are still pending, with a response being expected around May this year. More details can be found in the following resources and help current and future participants identify reporting coverage and potential gaps.

*The 2021 GRESB Real Estate Assessment alignment with the mandatory indicators of the Principal Adverse Impacts (PAI) is 46%. This alignment is a pure reflection of how the current GRESB Real Estate Assessment aligns with each indicator in Table 1 of the draft RTS (Annex 1), excluding the 2 indicators that are only applicable to investments in sovereigns and supranationals.

Although mandatory, some of the 16 indicators deemed applicable to the Real Estate sector are not necessarily relevant/material to the Real Estate sectors in GRESB’s eyes, which explains in part a medium alignment level. This is specifically illustrated in indicators 4 (‘Exposure to companies in the fossil fuel sector’), 14 (‘Exposure to controversial weapons’), and even indicator 17 (‘Exposure to fossil fuels through real estate assets’). Like many others in the industry, GRESB is waiting and hoping for clarifications from European Union bodies on the applicability of these indicators to Real Estate portfolios and assets.