The EU Sustainable Finance Disclosure Regulation (SFDR) improves sustainable finance transparency, yet its adoption as a de facto ESG labelling regime by market participants has strayed from its original purpose, posing challenges, according to the European Fund and Asset Management Association (Efama).
Recommending solutions, Efama suggested that the European Commission’s current review must focus on making SFDR provide clearer, more meaningful information for retail investors, promoting transition finance and aligning with other relevant legislation.
Urgent corporate-level sustainable changes require a well-functioning regulatory framework, enabling sustainable investors to contribute more efficiently to economic and technological transitions, shared Efama.
The body recommended implementing a categorisation system for financial products based on sustainability intentions, incorporating objective criteria, clear product descriptions, outlined ESG strategies and specified credible key performance indicators.
Integrate transition finance into SFDR to encourage investments supporting companies in transitioning to sustainable business models, beyond solely focusing on already sustainable projects or firms, it suggested.
Other recommendations included introducing a standard disclosure template for all financial products with sustainability claims to enhance accessibility for retail investors by presenting information clearly and uniformly.
The proposal also highlighted the need for ensuring SFDR changes align with investor sustainability preferences in MiFID and IDD.
Efama stated: “For any product categories to be effective in practice, they must be understandable to retail investors. It is therefore crucial to align any changes in SFDR with the investor sustainability preferences under MiFID and IDD.”
Finally, the proposal called for aligning entity-level sustainability reporting within SFDR with the Corporate Sustainability Reporting Directive to reduce unnecessary duplication, cut costs and focus on providing information that genuinely aids decision-making.
Anyve Arakelijan, regulatory policy advisor at Efama, commented: “The transformation of SFDR Articles 8 and 9 from their original role as disclosures into de-facto labels highlights the market’s growing need for a well-defined categorisation system.
At the same time, we also see merit in building upon the market’s existing familiarity with SFDR concepts, such as PAIs, when this could further complement the product categorisation regime.”
© 2023 funds europe
