Yes. SFDR allows sustainable investments to be measured at company level, not just activity level. General-purpose equity or corporate debt can count as a sustainable investment if the company: - contributes to an environmental or social objective, - does not significantly harm other objectives, and - follows good governance. The key requirement is that the fund explains its methodology clearly.
How does the definition of “sustainable investment” in Article 2, point (17) SFDR apply to investments in funding instruments that do not specify the use of proceeds, such as the general equity or debt of an investee company? For example, would an investment in an investee company which has one economic activity, among several other economic activities, that contributes to an environmental or social objective (and none of the economic activities significantly harm any environmental or social objective and the company follows good governance practices) be considered to be a “sustainable investment” as a whole or in part?
The definition of sustainable investment set out in Article 2, point (17), SFDR does not prescribe any specific approach to determine the contribution of an investment to environmental or social objectives. Financial market participants must disclose the methodology they have applied to carry out their assessment of sustainable investments, including how they have determined the contribution of the investments to environmental or social objectives, how investments do not cause significant harm to any environmental or social investment objective and how investee companies meet the ‘good governance practices’ requirement. This is reflected in Commission Delegated Regulation (EU) 2022/1288 which, for example, requires financial market participants to explain how the indicators for adverse impacts on sustainability factors have been taken into account when carrying out the ‘do no significant harm’ test of sustainable investments. The reference to ‘economic activities’ in the definition of sustainable investment set out in Article 2, point (17), SFDR seems to target cases in which funds are allocated to a specific project or activity, or to a company engaged in one single type of activity. However, financial market participants in scope of the SFDR can invest in funding instruments that do not specify the use of proceeds, such as the general equity or debt of an investee company. As an example, financial products referred to in Article 2, point (12) SFDR, such as UCITS and AIFs, can invest in the general equity or debt of an investee company. Moreover, pursuant to Article 9(3) SFDR, products tracking a Paris-aligned Benchmark (PAB) or a Climate Transition Benchmark (CTB), often based on portfolios of shares or bonds of companies, are deemed to make sustainable investments (see reply to question 5). In light of the above, the notion of sustainable investment can therefore also be measured at the level of a company and not only at the level of a specific activity.
European Commission
