EFAMA proposes SFDR changes
21 December 2023 Belgium
Image: chaylek/stock.adobe.com
The European Fund and Asset Management Association (EFAMA) has proposed a series of amendments of the Sustainable Finance Disclosure Regulation (SFDR). These amendments advise the European Commission review to consider how the regulation can be more transparent, promote transition finance and align with other relevant regulations.
The use of SFDR as a de facto labeling system has stretched the regulation beyond its original intentions and is “not always helpful”.
EFAMA suggests that a financial product categorisation system with objective criteria should be implemented, including product intention descriptions, an explanation of the ESG problems that will be followed and specifications of credible key performance indicators.
Transition finance needs to be more clearly refined and integrated within the regulation, the association adds, incentivising investments in companies moving towards more sustainable business models.
A simplified standard product disclosure template should be put in place to make information more accessible for retail investors, the association says. Additionally, entity-level sustainability reporting within SFDR should be aligned with the Corporate Sustainability Reporting Directive to reduce cost and provide decision-making information.
Finally, product categories must be understandable to retail investors in order to be effective, EFAMA says. As such, SFDR changes must be aligned with relevant regulations.
Anyve Arakelijan, regulatory policy advisor at EFAMA, says: “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.
“This would simplify the landscape for investors, especially if these categories have names that are intuitively understandable. At the same time, we also see merit in building upon the market's existing familiarity with SFDR concepts, such as principal adverse impacts, when this could further complement the product categorisation regime.”
Tanguy van de Werve, director general at EFAMA, comments: “This review of the SFDR is much needed and we applaud the Commission for being open to quite significant changes if they are in the best interests of investors.
“Whatever the changes will be, the investor sustainability regime under the Markets in Financial Instruments Directive and the Insurance Distribution Directive will have to be aligned accordingly to improve the customer journey and facilitate sustainable investing.”
The use of SFDR as a de facto labeling system has stretched the regulation beyond its original intentions and is “not always helpful”.
EFAMA suggests that a financial product categorisation system with objective criteria should be implemented, including product intention descriptions, an explanation of the ESG problems that will be followed and specifications of credible key performance indicators.
Transition finance needs to be more clearly refined and integrated within the regulation, the association adds, incentivising investments in companies moving towards more sustainable business models.
A simplified standard product disclosure template should be put in place to make information more accessible for retail investors, the association says. Additionally, entity-level sustainability reporting within SFDR should be aligned with the Corporate Sustainability Reporting Directive to reduce cost and provide decision-making information.
Finally, product categories must be understandable to retail investors in order to be effective, EFAMA says. As such, SFDR changes must be aligned with relevant regulations.
Anyve Arakelijan, regulatory policy advisor at EFAMA, says: “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.
“This would simplify the landscape for investors, especially if these categories have names that are intuitively understandable. At the same time, we also see merit in building upon the market's existing familiarity with SFDR concepts, such as principal adverse impacts, when this could further complement the product categorisation regime.”
Tanguy van de Werve, director general at EFAMA, comments: “This review of the SFDR is much needed and we applaud the Commission for being open to quite significant changes if they are in the best interests of investors.
“Whatever the changes will be, the investor sustainability regime under the Markets in Financial Instruments Directive and the Insurance Distribution Directive will have to be aligned accordingly to improve the customer journey and facilitate sustainable investing.”
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