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This methodology sets out how Integrum ESG measures what percentage of a fund qualifies as “sustainable investments” under the EU Sustainable Finance Disclosure Regulation (SFDR). Each holding is tested against the Article 2(17) definition: a contribution to an environmental or social objective, no significant harm to any of those objectives and good governance practices. The result is a single percentage for the fund, with the holding-level evidence behind it.
Purpose
Why the sustainable investment percentage matters
Institutional investors increasingly ask asset managers what percentage of a fund is made up of sustainable investments. Article 8 funds that commit to a minimum share of sustainable investments, and Article 9 funds, must also report that share in their SFDR disclosures.
The figure cannot be answered subjectively. Investors typically apply EU regulatory definitions, and the European Commission has confirmed that SFDR does not set minimum requirements for what counts as a contribution, significant harm or good governance. Each firm must make its own assessment and disclose the methodology behind it. A consistent, evidenced methodology applied to every holding is the most defensible way to produce the number.
Definitions
The two EU definitions of a sustainable investment
Two EU definitions are in use, and investors asking about “sustainable investments” usually mean the broader SFDR definition. Our EU Taxonomy Alignment Methodology explains how we assess holdings against the Taxonomy.
| Test | EU Taxonomy: environmentally sustainable | SFDR Article 2(17): sustainable investment |
|---|---|---|
| Objectives | Six environmental objectives: climate change mitigation, climate change adaptation, water and marine resources, the circular economy, pollution prevention and control and biodiversity and ecosystems | Environmental and social objectives, from resource efficiency, emissions and biodiversity to tackling inequality, labour relations and human capital |
| Contribution | A substantial contribution to at least one objective | A contribution to at least one objective |
| No significant harm | No significant harm to any of the other objectives | No significant harm to any of the objectives, taking the mandatory PAIs into account |
| Governance and safeguards | Minimum safeguards | Good governance practices |
| Scope | Environmental objectives only | Environmental and social objectives |
Some argue that Article 2(17) lists its objectives as examples rather than requirements. The European Commission has since confirmed, in answers published by the European Supervisory Authorities in April 2023, that sustainable investments “shall not significantly harm any of the objectives referred to in that Article”. Each objective must therefore be considered, alongside the 14 mandatory PAIs.
Method
The three tests each holding must pass
We apply the SFDR Article 2(17) definition to every holding in the fund. A holding counts as a sustainable investment only if it passes all three tests.
- Contribution to an objective We break the environmental and social objectives in Article 2(17) into 12 sustainability objectives, starting with reducing the amount of energy used and increasing the proportion of renewable energy. For each objective, the holding is shown as disclosing data and contributing, not disclosing data or not applicable to its sector.
- No significant harm The holding must do no significant harm to any of the 12 objectives. The mandatory PAIs are taken into account, using the PAI assessment set out in our SFDR Classification and PAI Methodology.
- Good governance practices Article 2(17) requires the investee company to follow good governance practices, in particular with respect to sound management structures, employee relations, remuneration of staff and tax compliance. We assess each holding against these four areas.
Each holding is assessed at company level, which the European Commission has confirmed is a permitted approach, using company disclosures.
Output
The Sustainable Investment Audit report
Clients upload a portfolio and receive a bespoke Sustainable Investment Audit report. It has two parts:
The summary
The total number of holdings, how many meet and fail the definition of a sustainable investment and the percentage of the fund considered sustainable investments.
The holding-level detail
For every holding: whether it meets the definition overall, how it maps against each of the 12 sustainability objectives and whether and how it passes the good governance test.
The detail lets a fund manager show exactly why each holding is or is not counted, and gives the evidence needed to support the figure in SFDR disclosures and investor reporting.
Worked example
Worked example: a 270-holding fund
| Sustainable Investment Audit | Result |
|---|---|
| Total number of holdings | 270 |
| Meets the definition of a sustainable investment | 159 |
| Fails to meet the definition of a sustainable investment | 111 |
| Fund considered sustainable investments | 59% |
In this example, 159 of the fund’s 270 holdings pass all three tests, so 59% of the fund is considered sustainable investments. For each of the 111 holdings that fail, the holding-level detail shows how it performed against each of the 12 objectives and the good governance test.
Uses
Who uses the audit
Asset managers
Answer institutional investors’ questions on a fund’s sustainable investment percentage with a figure backed by holding-level evidence.
Asset owners
Check the sustainable investment percentages their managers report by uploading the managers’ portfolios and running the same test.
Compliance teams
Support the minimum sustainable investment commitments in Article 8 and Article 9 pre-contractual and periodic disclosures.
Product teams
Test whether a fund can credibly commit to a sustainable investment minimum before it launches or changes its SFDR classification.
Regulation
SFDR 2.0 and the sustainable investment definition
The SFDR 2.0 proposals would remove the Article 2(17) sustainable investment definition and replace the Article 8 and 9 structure with three product categories: Transition, ESG Basics and Sustainable. Trilogue negotiations are under way, and the new regime is expected to apply from late 2028 or early 2029. Until then the current definition stays in force, and this methodology applies it. We will update the methodology as the final rules are agreed.
FAQs
Frequently asked questions
What is a sustainable investment under SFDR?
Under SFDR Article 2(17), a sustainable investment is an investment in an economic activity that contributes to an environmental or social objective, does no significant harm to any of those objectives and is made in a company that follows good governance practices.
What is the difference between a sustainable investment and a Taxonomy-aligned investment?
A Taxonomy-aligned investment makes a substantial contribution to one of six environmental objectives, does no significant harm to the others and meets minimum safeguards. A sustainable investment under SFDR is broader: it can contribute to an environmental or a social objective, and must do no significant harm and follow good governance practices.
How does Integrum ESG calculate the sustainable investment percentage of a fund?
We test every holding against the SFDR Article 2(17) definition: contribution to at least one of 12 sustainability objectives, good governance practices and no significant harm to any of the objectives, with the mandatory PAIs taken into account. The percentage is the share of the fund that passes all three tests.
Does SFDR set a standard methodology for sustainable investments?
No. The European Commission has confirmed that SFDR does not set minimum requirements for contribution, significant harm or good governance. Each firm must make its own assessment and disclose its methodology, which is why a consistent, evidenced approach matters.
Can asset owners use the audit to check their managers?
Yes. Asset owners can upload their managers’ portfolios and compare the result with the sustainable investment percentage each manager reports.
What happens to the sustainable investment definition under SFDR 2.0?
The SFDR 2.0 proposals would remove the Article 2(17) definition. Until the new regime applies, expected from late 2028 or early 2029, the current definition remains in force.
Audit your fund’s sustainable investments
Speak to our team to see what percentage of your fund meets the SFDR definition, with the evidence for every holding.