AFG Recommandation – Definition of sustainable investment according to SFDR


SFDR level 2 measures apply from 1 January 2023 and require, among others, the disclosure of the « sustainable investment » proportion of financial products.

The application of the very general definition of sustainable investment according to SFDR has led to very heterogeneous results from one player to another. The AFG and its members has carried out work to propose common principles to clarify this definition. As the SFDR will not be reviewed before 2025, these principles could provide some help to apply the definition and be used as convergence tool.

Far from considering this deliverable as definitive, the AFG continues to work on the subject and to exchange with other stakeholders who have also started work. Clarifications may come from the authorities and AFG will modify or enrich its recommendations accordingly. These principles are being promoted by AFG in a context where other stakeholders are also working on the issue.

Common principles

To summarize, AFG recommends to consider an investee company sustainable as a whole when it is identified as :

  • “Active » (taxonomy alignment or contribution to the issues listed in the SFDR regulation, using a commonly accepted framework, such as the UN’s SDGs)
  • and/or « committed » (measurable and enforceable commitment, e.g. a company’s commitment to transition measured by its current or projected investments and with monitoring and escalation processes monitored by the asset management company).

Specifically, AFG recommends that the following elements (not cumulative) be considered when defining a company’s contribution to an environmental or social objective:

  • As already required by the regulation, the share of turnover Capex and/or OpEx contributing to an environmental or social objective;
  • A company’s commitment to the transition: if it offers solutions that contribute to an E or S objective or if the company has a robust, measurable and enforceable transition plan in line with the Paris Agreement;
  • Any other quantitative element allowing the assessment of the company’s contribution to an E or S objective.

In addition to this “contribution”, the do not significant harm principle (through the SFDR PAI) should also be respected and companies in which the investments are made have to follow good governance practices.

The AFG recommends asset management companies to provide transparency on their methodologies and in notably on the threshold above which a company is considered as sustainable entirely.

See the AFG note « Definition of Sustainable Investment according to SFDR «