SFDR, EU Taxonomy & Greenwashing — The Regulatory Topics You Must Know for the Sustainable Investing Exam
- Kateryna Myrko
- 14 minutes ago
- 4 min read
If you’re preparing for the CFA Institute Sustainable Investing Certificate exam (100 MCQs in 140 minutes), EU sustainable finance regulation shows up as “must-know” context because it shapes how products are labeled, disclosed, and marketed—and where mis-selling/greenwashing risk sits in the investment process. The official CFA curriculum explicitly covers the ESG market’s drivers, challenges, and risks/opportunities, which is exactly where SFDR, the EU Taxonomy, and greenwashing supervision belong.
Below is what you need to know at a working, exam-ready level (not legal commentary).
1) SFDR: what it is, who it affects, and what it actually requires
The point of SFDR (don’t overcomplicate it) SFDR, EU Taxonomy & Greenwashing , Sustainable Investing Exam
The Sustainable Finance Disclosure Regulation (SFDR) is the EU’s transparency framework for sustainability-related disclosures by financial market participants and financial advisers. It has applied since March 2021. SFDR, EU Taxonomy & Greenwashing , Sustainable Investing Exam
Exam-relevant framing: SFDR is about standardized disclosures—so investors can compare products—rather than a “label” regime that certifies sustainability.
The three product disclosure “lanes” you must distinguish
In practice, candidates must be clear on the SFDR product classifications commonly discussed in the market:
Article 6: products that integrate sustainability risks (and must explain how), but do not promote E/S characteristics as a core feature.
Article 8: products that promote environmental and/or social characteristics (often called “light green”).
Article 9: products that have sustainable investment as an objective (often called “dark green”).
You don’t need to memorize legal text verbatim, but you do need to understand the disclosure logic: what claims trigger what disclosure burden, and why Article 9 has higher scrutiny.
PAI: the “adverse impact” concept you must be able to explain
SFDR introduced Principal Adverse Impacts (PAI)—a structured way for firms to disclose how investment decisions affect sustainability factors. The European Supervisory Authorities (EBA, EIOPA, ESMA) provide editable versions of SFDR disclosure templates tied to the delegated regulation that sets out the format/content for product disclosures, referencing Articles 8, 9, and 11 SFDR.
Exam mindset: PAI is about negative externalities and sustainability impacts, not only financial materiality. Be able to distinguish:
“Sustainability risk” (risk to the investment)
“Adverse impact” (impact of the investment on sustainability factors)
2026 reality check: SFDR is changing (know that the framework is under revision)
For 2026, the high-level fact you should know is that the European Commission proposed amendments to SFDR in November 2025 to address shortcomings and simplify/align the regime with market realities.
You are unlikely to be tested on legislative drafting, but you can be tested on why reforms happen: investor confusion, inconsistent product labeling behavior, and greenwashing risk.
2) EU Taxonomy: classification system, not a “stamp of approval”
What the EU Taxonomy is
The EU Taxonomy provides a common definition of which economic activities can be considered environmentally sustainable, aiming to reduce fragmentation and protect investors from greenwashing.
Exam-ready takeaway: the Taxonomy is a classification system (a rule-based framework), not a guarantee that an entire company or fund is “green.”
The six environmental objectives + the four tests (the Taxonomy “logic stack”)
You should know the Taxonomy’s core logic:
The activity contributes substantially to at least one environmental objective (there are six).
It Does No Significant Harm (DNSH) to the other objectives
It meets minimum safeguards (social/governance baseline)
It meets technical screening criteria set out in delegated acts
You don’t need to memorize every technical criterion, but you must understand what “alignment” implies:
satisfying the full stack above.
Climate vs. non-climate environmental criteria: what changed in recent years
The Commission adopted the Taxonomy Environmental Delegated Act in June 2023, adding criteria for the non-climate objectives (water, circular economy, pollution prevention, biodiversity/ecosystems).
Exam application: you may be asked to identify whether a disclosure is talking about Taxonomy-eligible vs Taxonomy-aligned activities. “Eligible” means it falls within a covered activity; “aligned” means it meets the criteria and safeguards.
3) Greenwashing: how regulators define the problem and how it shows up in exam questions
ESMA’s definition-driven approach (the version you should learn)
ESMA’s 2024 Final Report on Greenwashing is highly useful for exam prep because it frames greenwashing as a supervisory and investor-protection issue tied to claims that are unclear, unfair, or misleading.
In exam terms, greenwashing risk is usually tested through scenarios like:
A fund name implying sustainability leadership without consistent strategy/portfolio reality
Overstated “impact” language without credible measurement
Selective disclosure (highlighting one metric while omitting material negatives)
Where SFDR and Taxonomy create greenwashing risk
Typical pitfalls the exam expects you to recognize:
SFDR is disclosure, not a label: marketing Article 8/9 as a “certification” is a red flag.
Taxonomy alignment is specific: claiming “Taxonomy-aligned” without DNSH/minimum safeguards is a red flag.
PAI and sustainability risk are not interchangeable: reporting one while implying the other can mislead.
4) How to study these topics for a 140-minute exam
Because the Sustainable Investing exam is fast-paced, you need “instant recall” structures:
SFDR one-pager: purpose, entity vs product disclosures, Article 6/8/9 logic, PAI vs risk distinction.
Taxonomy one-pager: six objectives + four tests + eligible vs aligned distinction.
Greenwashing checklist (claims, evidence, consistency, omissions, governance), anchored to ESMA’s supervisory focus.
If you can do those three from memory, you’re in excellent shape for most regulation-style questions.
Unlock your potential with our comprehensive Sustainable Investing practice exams and study packages!
Comments