In a recent post by Novatus Global, the company took a deeper look into the European Commission’s SFDR reforms.
On 14 September 2023, the European Commission took a groundbreaking step in the domain of sustainable finance.
They launched two pivotal consultations related to the Sustainable Finance Disclosures Regulation (SFDR). Crafted meticulously for both the general public and specific SFDR stakeholders, these consultations aim to polish the prevailing SFDR structure, aligning it more congruently with the EU’s overarching sustainable finance agendas.
Our recent publication, ‘Is the SFDR causing clarity or confusion’, pinpointed the demand for additional specifics and information from the regulatory body to ensure firms’ adherence to the regulations. These new consultations and their subsequent outcomes are anticipated to pave the way towards this direction.
So, what do these consultations encompass?
The European Union has rolled out two parallel consultation papers: a public consultation and a targeted one. The latter, in essence, encapsulates the key aspects of the public consultation whilst also extending its reach with an in-depth set of questionnaires. This revolves around product categorisation systems and modifications in disclosure mandates. Therefore, our emphasis will primarily be on the dialogues proposed within this targeted consultation.
The present consultation looks into which components of the extant SFDR framework are ripe for modifications.
It’s evident that the Commission is on the hunt for market-driven perspectives on the current SFDR structure. Post-consultation alterations might involve:
Categorising Sustainable Products: The SFDR, at its inception, was conceived as a disclosure mechanism. However, recognising its prevalent usage as a product labelling tool, the Commission hints at a potential market inclination for a product categorisation model. The proposed strategies include bifurcating categories based on the nature of the product’s investment strategy or its contribution to specific sustainability goals. Another strategy involves redefining Article 8 and 9 into distinct product categories and enhancing the clarity of labels.
Streamlining Entity-Specific Disclosures: The ongoing debate in the financial services realm pertains to the utility of both product and entity-specific PAI disclosures. In response, the EC suggests a refinement of entity-centric disclosures.
Combatting Greenwashing: In the bid to ensure investment fund names are transparent and authentic, the Commission has put forth guidelines within the consultation regarding fund naming and marketing communications.
Balancing Disclosure Burdens: The Commission’s current contemplation revolves around re-evaluating the disclosures stipulated for funds under Article 8 and 9.
Digitising Disclosures: A significant proposal is the potential digitisation of SFDR disclosures, facilitating comparability, usability, and reporting efficiencies.
What’s the immediate call to action?
Primarily, these consultation papers serve as a platform for the European Commission to assimilate feedback to fine-tune the SFDR framework. At this juncture, no concrete draft rules have been laid out. Businesses within the SFDR’s purview are not obligated to revise their reporting strategies for FY 2023. The consultation phase is scheduled to wrap up on 15 December 2023, followed by a detailed draft of the proposed amendments.
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