The European Supervisory Authorities (ESAs) EBA, Eiopa and Esma have adjusted proposed requirements under the EU sustainable finance disclosure regulation (SFDR). This was done in order to prevent possible greenwashing by asset managers, according to Esma president Steven Maijoor (pictured).
The report contains a draft of the technical standards that will be part of the Sustainability-related Financial Disclosure Regulation (SFDR), which will come into force on 10 March. The report has been eagerly awaited by asset managers, banks, interest groups and law firms. According to Steven Maijoor (pictured), the chair of the ESAs, the rules drawn up are intended to improve reporting on ESG factors and to combat greenwashing. According to him, the issue is to strike a balance between disclosure and transparency in the context of SFDR.
Wave of legislation and regulation
The characteristics and objectives of the financial products used must be shown in an annex on asset managers’ websites, the ESAs said in their joint statement. This includes pre-contractual information, which gives details of the product and its characteristics and objectives and what methodology has been used. Furthermore, information must be included on the extent to which the products meet sustainable investment objectives and how the product contributes to reducing CO2 emissions in the European Union. Finally, regular information that complies with the so-called ‘do not significantly harm’ principle must be provided.
This addition regarding the clarification of the so-called Level 2 regime was prompted by uncertainty in the market regarding the technical elaboration of the sustainable policy initiated by the European Commission, the so-called “Green Deal”. The provisions on technical standards (RTS) published today will come into force on 1 January 2022, according to the European regulators in their press release. Level 1 of the SFDR will come into force on 10 March 2021.
However, uncertainties around the practical application of the SFDR remain. In a letter to the European Commission last month, the ESAs asked, among others, for ‘urgent’ clarification about what’s meant by ‘promoting’ environmental or social characteristics, a requirement for funds to be classified as ‘article 8’ or ‘article 9’ funds under the SFDR. Asset managers have also noted there’s a risk national regulators may use different criteria to assess the sustainability profile of investment funds, which could possibly lead to the same investment products receiving different labels in the various member states. “As a result, one fund may be ‘article 8’ in one jurisdiction while it won’t qualify as such in another one,” Agathi Pafili, head of EU government relations for Capital Group, noted in a panel discussion organised by Luxflag on the topic this week. “That, in a cross-border market, would be a big barrier,” she added.
Also read: Alfi - Lack of data main challenge for SFDR implementation