The European Commission is consulting on how the Sustainable Finance Disclosures Regulation (SFDR) is implemented and whether to build out Articles 8 and 9 into fund labels or create new, investment strategy-based labels.
It has launched two consultations, one targeting financial services and the sustainable finance sector (including NGOs and other relevant bodies), aiming to gage whether the overall aim of the SFDR is “still relevant” and whether the current disclosure framework is effective.
“Since the SFDR was proposed in 2018, a lot has changed in the world of sustainable finance,” said Mairead McGuinness, commissioner for financial services, Financial Stability and Capital Markets Union.
“We want to know if our rules meet [investor] needs and expectations, and if it is fit for purpose.”
Among areas being consulted on is whether sustainable fund labels should be introduced.
“The SFDR was designed as a disclosure regime, but is being used as a labelling scheme, suggesting that there might be a demand for establishing sustainability product categories,” the consultation said.
“The fact that Articles 8 and 9 of the SFDR are being used as de facto product labels, together with the proliferation of national ESG/sustainability labels, suggests that there is a market demand for such tools in order to communicate the ESG/sustainability performance of financial products.”
The consultation goes on to say there is a risk of greenwashing arising from the use of SFDR as a labelling scheme and is therefore consulting on whether to develop a product labelling system based on “precise criteria”. It says this could either build out Articles 8 and 9 into product labels, or take a new approach such as focusing on types of investment strategies like “positive contribution” to sustainability objectives or “transition focus” – similar to the proposals from the UK’s Sustainability Disclosure Requirements.
“In such a scenario, concepts such as environmental/social characteristics or sustainable investment and the distinction between current Articles 8 and 9 of SFDR may disappear altogether from the transparency framework,” it said.
The consultation, which closes on 15 December, also invites respondents to submit a breakdown of costs associated with SFDR requirements, and contains questions about the availability of high-quality data from corporates and about SFDR’s compatibility with other sustainable finance regulation.
This story originated on our sister title, ESG Clarity.