Policy Update: The EU’s Plan for SFDR in the Near Future.
On 14 September 2023, the European Commission published a public consultation and a targeted consultation on the EU Sustainable Finance Disclosures Regulation (SFDR). As a result of the consultations, potential changes to the SFDR Level 1 are on the horizon. Additionally, it is worth noting that ongoing consultation by the European Supervisory Authorities (ESA) concerning the SFDR Level 2 (Technical Standards) is also happening. The results are projected to be published either by the end of 2023 or in the early months of 2024.
While consultations are still taking place, and the final decision has not been made yet, below are the key changes that are being discussed:
Implementing materiality assessment to the Principal Adverse Impact (PAIs) indicators, which means that as a Financial Market Participant, you would select the most important indicators from the Principal Adverse Impact (PAIs) indicators list, instead of disclosing all the mandatory PAIs and some additional PAIs listed under the SFDR.
Establishing a new categorization system for financial products could fall into one of two strategies:
Converting Articles 8 and 9 into formal product categories, thus clarifying and adding criteria to the existing concepts of environmental/social characteristics, sustainable investment, do no significant harm, etc.;
Or developing a new approach to categorization (i.e., focusing on the type of investment strategy of the product), which would result in the disappearance of the current Article 8 and 9 distinctions.
Implementing a standardized product-level disclosure requirement regardless of the product’s sustainability-related claims i.e., all products whether under articles 6, 8, or 9 would have the same disclosure requirements.
Even more formal rules around naming and marketing to prevent greenwashing in the financial industry e.g., you may only be able to use terms such as ‘Impact’ in your fund name if your fund is disclosed under Article 9.
You may find the details of each of these points within the link: targeted consultation.
Despite the adjustments, it is clear that the SFDR is firmly entrenched within the European regulatory framework and is here to stay as a pivotal element of sustainable finance legislation. This is reflected in the growing trend of the EU expecting sustainability-related disclosures, even on non-sustainable investments, thereby giving an impetus to responsible finance practices.
What are the next steps for you as an EU investor?
If you would like to participate in an EU study regarding the effectiveness of SFDR, you may respond to the targeted consultation by 15 December 2023.
Stay tuned for further updates as the SFDR framework evolves. We will keep you informed of any significant developments within the European Union.
Thank you for being part of our sustainable finance community.
