Under the regulatory framework that currently applies to sustainable finance, financial institutions must be able to explain in concrete terms why their sustainability indicators are changing and track them to demonstrate compliance. To meet this challenge, the teams in charge of these issues can rely on the attribution method.
Compliance with European regulations is based on a simple but extremely demanding principle: producing high-quality sustainability data. The challenge is not limited to collection: it is also necessary to document the origin of the data, its quality and the methods used to fill in the gaps. Auditability is another issue that needs to be addressed in order to ensure compliance with several European and national regulations. Financial institutions must therefore be able to trace each piece of data and justify each calculation in a transparent manner.
Beyond a simple snapshot at a given moment in time, regulators now want to understand how and why indicators change. SFDR 2.0, which could come into force in the next few years, requires funds in the three new categories (Transition, ESG Basics, Sustainable) to describe in their periodic reports ‘the extent to which sustainability objectives have been achieved’. This wording implies a real capacity for temporal analysis. But only a detailed analysis can untangle the various factors that influence the evolution of indicators.
The attribution method is an analytical approach that breaks down the evolution of a sustainability indicator to identify its specific causes. Inspired by the techniques used for financial performance attribution, it applies the same reasoning to sustainability indicators by isolating four main factors:
The exposure effect measures the impact of active management decisions – your purchases and sales of securities – on the sustainability indicator. It quantifies precisely how your choices have influenced the sustainable performance of the portfolio.
The market effect captures the impact of price changes on the weighting of financial instruments in the portfolio, without any action on your part. This is essential for distinguishing mechanical variations from strategic decisions.
The data coverage effect assesses the impact of changes in the availability of sustainability data. Providers regularly update their coverage, which can cause aggregate indicators to shift without any change in the underlying reality. Controlling the impact of data coverage on indicator changes could become an even more pressing issue in the coming years, as the SFDR revision plans to require more justification regarding the origin of data and its providers.
The effect of invested positions measures the impact of actual changes in the sustainability data of companies in the portfolio. If a company effectively reduces its emissions or improves its social practices, this effect will capture that change.
The method also allows for a cascading analysis, like Russian dolls: you can analyse the impact at the level of the overall investment structure, then drill down to the level of a specific fund, industry or geographical area.
This breakdown makes it easier to meet regulatory requirements by providing an objective and traceable view of changes in indicators. Rather than simply noting that an indicator has changed, you can now explain precisely why and how, with figures to back it up.
This ability to explain is particularly valuable in demonstrating compliance with regulatory obligations. Take, for example, an Article 9 fund under the future SFDR 2.0 (Sustainable category), which must maintain a minimum alignment of 70% with its sustainability objectives.
The attribution method allows you to:
The automation of these analyses represents a major operational advantage. The tasks of collecting, consolidating and analysing data, which used to take several days of manual work, can now be carried out in a matter of hours with a suitable technology platform. This efficiency allows for continuous compliance monitoring rather than a one-off check at the end of the financial year, thereby reducing the risk of prolonged non-compliance.
An asset manager manages an Article 8 fund (as defined in the current version of the SFDR) that promotes a 30% reduction in carbon intensity compared to its benchmark index. In 2024, everything is fine: the fund is meeting its objective. But in 2025, carbon intensity rises again. Risk: financial penalties and loss of Article 8 status.
Attribution analysis reveals that this deterioration is not the result of management decisions contrary to the fund's objectives. It stems mainly from new investment positions.
The manager can therefore:
An asset manager is subject to a spot check by the AMF (or another regulator) concerning an Article 9 fund (within the meaning of the current version of the SFDR) that claims to have a ‘sustainable investment objective’ and to ‘contribute to the energy transition’. The regulator wants to verify that these statements are supported by reliable indicators.
Attribution provides comprehensive and traceable documentation by tracing the source of variations in the various indicators. This methodological rigour protects the financial institution from regulatory sanctions and enhances its credibility with all its stakeholders.
An asset manager is preparing to transition its funds to the new SFDR 2.0 categories and wishes to classify a fund in the Article 7 (Transition) category, which requires demonstrating that 70% of investments contribute to the transition to sustainability. However, it has concerns about the quality of its data. The attribution method highlights that the improvement in several key indicators observed in recent months is actually due to less comprehensive data coverage. By detecting this trend in time, the manager can once again take corrective measures.
The attribution method is therefore an essential tool for navigating the regulatory complexity of European sustainable finance. It provides asset managers with an objective, traceable and auditable view of their sustainable performance.
The Attribution module developed by WeeFin was designed specifically to automate these analyses and industrialise regulatory compliance management. With SFDR 2.0 set to come into force in 2027-2028, investing in robust attribution tools not only provides protection against regulatory risks, but also a decisive competitive advantage for sustainable finance players.
