New regulations governing sustainable investing in the European Union could affect U.S. investors soon. This week, new EU rules took effect for managers of sustainable funds—or those that invest according to environmental, social or governance (ESG) considerations. Now these fund managers must report specifics of how they do their investing. The EU’s Sustainable Finance Disclosure Regulation, or SFDR for short, affects all asset managers that raise money in the EU, even if they are not based there. That means the new regulations have implications even for those funds offered to U.S. investors. The rules are aimed to prevent so-called greenwashing, or funds being marketed as sustainable when they are only superficially so. Among other things, money managers in the EU must classify their funds either as non-sustainable; as owning investments with particular environmental or social characteristics; or as contributing to a specific environmental or social objective. This will require changes to disclosures and marketing materials, with money managers needing to report how they assess their companies across a range of metrics. The detailed disclosures must be supplied beginning in 2022.

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