EU Proposing Amendments to Simplify and Extend Sustainable Finance Disclosure Regulations.
This week, the European Supervisory Authorities (ESAs), which includes the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA), have proposed amendments to extend and simplify sustainability disclosures for financial market participants under the EU's Sustainable Finance Disclosure Regulation (SFDR). These proposed amendments come from the ESA requesting a review of the SFDR's indicators for principal adverse impact (PAI) and financial product disclosures.
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To break this down a bit, according to Eurosif, the Sustainable Finance Disclosure Regulation (SFDR) is a European regulation introduced to improve transparency in the market for sustainable investment products, to prevent greenwashing and to increase transparency around sustainability claims made by financial market participants (Eurosif, n.d.). The EU SFDR regulation has classification levels for sustainability-focused investment funds. These include 'Article 8' funds that promote environmental or social characteristics or a combination of both, and 'Article 9' funds that have sustainable investment as their objective. Despite the requirement for asset managers with sustainable investment products to provide disclosures under SFDR beginning in January 2023, there is still uncertainty regarding some of the key reporting details, such as the PAI requirements.
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This uncertainty led to asset manager Amundi reclassifying almost all of its $45 billion Article 9 funds to lower sustainability levels, citing the lack of a uniform approach to defining sustainability. In an effort to address the complexity of the SFDR rules, the ESAs have proposed consulting stakeholders on changes to the regulation’s template and developing a dashboard of key information for disclosure, including minimum amounts of sustainable and taxonomy-aligned investments and PAI and GHG reduction targets.
The proposals also include extensions to the list of universal social indicators for disclosure of the PAIs and refinements to the content of other indicators for adverse impacts. In addition, the ESAs announced a consultation on the proposed rules, open until July 4, 2023, and expected to release the final report by the end of October 2023.
Sources:
Eurosif. (n.d.). SFDR: The EU’s Sustainable Finance Disclosure Regulation. Retrieved April 14, 2023, from https://www.eurosif.org/policies/sfdr/
ESG Today. (2023, April 13). EU Regulators Propose Changes to Sustainable Finance Disclosure Rules. Retrieved from https://www.esgtoday.com/eu-regulators-propose-changes-to-sustainable-finance-disclosure-rules/
