The European sustainable finance disclosure regulation (SFDR) and its influence on ESG performance and risk in the fund industry from a multi-regional perspective

Abstract

Purpose The aim of this paper is to evaluate the impact of the sustainable financial disclosure regulation (SFDR) on the environmental, social and governance (ESG) performance and risk scores of sustainable funds (SFs) from a multi-regional perspective. Design/methodology/approach This research involves conducting a comparative study between self-labeled SFs and conventional funds of the same mutual fund company matched using a five-step process. Using the SFDR publication as a natural study, this study uses panel data methodology on a portfolio ESG score database before SFDR implementation and three to six months post-SFDR Level 1 requirement to measure the impact. Findings The findings provide evidence of a clear reduction in ESG risk and an improvement in ESG performance across all samples and ESG dimensions following the SFDR regulation. In addition, the results reveal a positive spillover effect of the regulation on conventional funds following its implementation. Research limitations/implications The study can be helpful for fund managers, investors and regulators as it provides insights into the impact of mandatory ESG disclosure regulation on the global fund investment market. The study is limited by data availability due to the restrictive matching approach used, which starts with fund pairs from the same fund management company. Practical implications The study can be helpful for fund managers, investors and regulators as it provides insights into the impact of mandatory ESG disclosure regulation on the global fund investment market. Originality/value To the best of the authors’ knowledge, there is a lack of research papers that analyze the impact of the SFDR mandatory regulation as a driving force on the ESG scores of the fund market using the same fund management matched pair approach. This paper tests the importance of the investment area through a multi-regional approach to study potential “spillover” effects.