Since the SFDR Wake-Up Call from Norway’s Financial Regulator

In October last year, Norway’s Financial Supervisory Authority (Finanstilsynet) reported that 54 per cent of the 87 asset managers and financial advisers it reviewed over the year failed to meet the standards set by the Sustainable Finance Disclosure Regulation (SFDR). What has happened since?

A further 36 per cent received only a “Moderate” rating, leaving overall sector performance weak. National regulators follow an SFDR supervisory guide issued by the European Securities and Markets Authority (ESMA). This guide provides a framework but does not limit the scope of what Finanstilsynet can review.

ESMA has emphasised integrating sustainability risks into investment decisions and ensuring the accuracy of sustainability-related claims. For SFDR specialists, Finanstilsynet’s findings were unsurprising in both the standards applied and the state of the market.

The Aftermath

Finanstilsynet’s sustainability seminar generated extensive discussion. Many asset managers and advisers had previously questioned the relevance of the rules or assumed they were already compliant. The seminar accelerated action but not without challenges.

A persistent problem is the sector’s tendency to oversimplify a complex regulation with multiple interpretations. Effective compliance requires familiarity with supplementary EU guidance, Q&A documents, and consensus practices at the European level. Legal advice is useful, but few advisers can translate it into practical processes tailored to different firms.

Work has begun but significant gaps remain, as evidenced by firms’ public disclosures. Many are now actively updating their online information. Compliance comes at a cost. EU stakeholders have previously estimated that SFDR implementation can cost between €80,000 and €200,000 per year for a mid-sized asset manager.

What Counts as Adequate

SFDR is new territory for Finanstilsynet. The regulator is unlikely to provide exact details for what is good enough, particularly for ESG risk integration. Firms must judge for themselves what constitutes adequate compliance. Experts recommend robust, well-understood processes based on reliable and relevant information. Compliance is about processes, not a paperwork exercise.

Looking Ahead

Finanstilsynet plans to continue monitoring SFDR compliance. Further enforcement is expected given the high proportion of firms that failed.

Upcoming revisions to SFDR should not be seen as a reason to delay compliance. A major overhaul is underway, including the ongoing Omnibus process aimed at easing corporate sustainability reporting. However, it is unlikely that these changes will reduce requirements for integrating sustainability risks into investment decisions or justifying sustainability claims. Expected changes include introducing a product classification framework, reducing reporting obligations at the entity level, and adjusting requirements for principal adverse impact (PAI) reporting.

Waiting for regulatory updates is not a viable strategy. Firms that have not yet begun SFDR work should take immediate and serious action.