The EU’s Sustainable Finance Disclosure Regulation (SFDR) came into force in March. It has been said to pave the way for greater transparency in ESG – or environmental, social, and governance – investing, but frustrations remain.
For Funds Europe’s April issue, we learned that transparency in the funds industry is expected to increase over the next two years, as funds have to categorise themselves depending how ESG-focused they are, if at all. As with all regulation, however, SFDR’s implementation is a process.
The second level of SFDR, a crucial part of the EU’s sustainability agenda, is expected to come into play in January 2022, having been postponed. This will include the Regulatory Technical Standards, a further step designed to redefine ESG investing.
“Since SFDR was written in 2019, the industry has had plenty of time to discuss it, whilst the regulator had plenty of time to define the technical side,” Francesco Cavallini, client director at alternatives fund administrator IQ-EQ, told Funds Europe. “But Covid happened, so everything got delayed – except the deadline for level one.”
When the next set of standards related to SFDR come into force, asset managers will have to disclose information on so-called ‘principal adverse impacts’ (PAIs) in their portfolios such as greenhouse gas emissions, waste, human rights and executive pay. All this is designed to snub out greenwashing, and preventing funds claiming ESG credentials when they are not sustainable.
“We find ourselves in this scenario wherein we have done the work but are unsure if it is enough,” says Cavallini. “Fund managers are a bit frustrated in knowing that when the technical standards are issued, they may need to redo part of the work.”
Read more about SFDR, its impact on ESG investing, and why it is challenged here: ESG: Green, greener, greenest…
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