The European Union has positioned itself at the forefront of sustainable finance, introducing regulatory frameworks such as the Sustainable Finance Disclosure Regulation (SFDR) to increase transparency and reduce the risk of greenwashing. In its current form, SFDR requires asset managers to classify funds as:

• Article 9 (“dark green”) – funds with sustainability as their explicit objective,
• Article 8 (“light green”) – funds that promote environmental or social characteristics, and
• Article 6 – funds without sustainability focus.

Despite this progress, sustainable investing continues to face two main challenges:
1. Greenwashing risks, where sustainability claims do not align with actual practices.
2. Inconsistent ESG metrics, with rating agencies often providing divergent assessments of the same company.

This paper introduces the SFDR Market-Implied Sustainability (SMIS) scores, derived from actual portfolio allocations of Article 9 funds. SMIS scores are attributed to individual companies based on investment funds’ holdings, assessing which stocks are over-represented in Article 9 funds compared to the rest of the funds in the market. Unlike ESG scores produced by rating agencies, SMIS reflects investors revealed preferences for sustainability, as expressed through capital allocation. 

The study compares SMIS with ESG scores issued by the data provider Refinitiv, analyzes their determinants, and evaluates their implications for financial performance. The output of the analysis may also be relevant for the ongoing process of revision of the SFDR framework.