The European Commission published a targeted consultation and a public consultation of the Sustainable Finance Disclosure Regulation (SFDR) on September 14.
The targeted consultation is aimed to an audience more familiar with SFDR and the EU’s sustainable frameworks and is divided into four distinct sections:
- Current requirements of the Sustainable Finance Disclosure Regulation (SFDR).
- Link and interaction with other sustainable finance regulations and directives.
- Potential modifications to the disclosure obligations for financial market participants (FMPs).
- The potential introduction of a classification system for financial products.
Sections 1 and 2 analyze the current state of SFDR, examining its practical application and identifying potential challenges stakeholders encounter during its implementation. Sections 3 and 4, on the other hand, have a forward-looking approach, evaluating possible strategies to mitigate any potential limitations.
The more concise public consultation (relevant for a broader range of stakeholders) exclusively addresses only the first two sections.
Some of the highlights in the consultation paper cover topics such as:
- Standardized product disclosures: In the discussion on standardized product disclosures, one of the considerations being explored by the European Commission is the introduction of product disclosure requirements that would apply to “all financial products offered in the EU, regardless of their sustainability-related claims or any other consideration.”
- Sustainable investments: the commission is reviewing whether the industry needs clarification of key concepts such as “sustainable investment”, to make disclosures comparable.
- Categorization system: As per the consultation document, the European Commission is exploring the potential benefits of implementing a categorization system for financial products. This analysis stems from the observation that Articles 8 and 9 are currently being informally utilized as labels, which has raised concerns about the risk of greenwashing. The French regulatory authority has already proposed minimum criteria for Articles 8 and 9 earlier this year to address this issue. The Commission is now actively seeking input on two overarching strategies for the establishment of a comprehensive categorization system. One approach would entail formalizing Articles 8 and 9 as distinct product categories and expanding upon the underlying concepts, such as sustainable investments or the principle of “do no significant harm.” Alternatively, the Commission is willing to focus on the investment strategy and check completely new criteria (not yet existing within SFDR or Taxonomy).
- Shift to sustainable investments: The Commission is raising the question whether market participants think SFDR has been successful in channeling capital toward sustainable activities. The European Commission has stated that its consultation will aim to determine whether SFDR’s initial objective of facilitating the transition to a sustainable, climate-neutral economy in the EU remains pertinent.
- ESG (Environmental, Social, Governance) data availability and quality: Another key point which is mentioned throughout the document is the ESG data availability and more precisely – its quality. This appears to be the main struggle for most of the FMPs and plays an important role in ensuring consistent results and comparability among investors and their SFDR-related products. The European Commission points out the fact that ESG data is missing also because the entity reporting on the Corporate Sustainability Reporting Directive (CSRD) will only come into effect sequentially in the next few years, depending on the type of the company.
Stakeholders are invited to provide their feedback until the consultation deadline December 15. cleversoft will review the questions thoroughly and will consult both internally and externally with interested clients. Based on this, we will prepare our official feedback on this topic.
Our Regulatory Watch team is closely monitoring any further developments on the SFDR, Taxonomy and CSRD regulations. As part of our compliance commitment towards our clients, we provide regulatory updates in due time. If you have any questions, feel free to contact us: our experts will gladly advise you on the details.