The EU”s Sustainable Finance Disclosure Regulation (SFDR) has faced major challenges since its implementation. It’s fair to say that most people agree that the law needs to be changed, but thus far there hasn’t been a consensus on how. We previously wrote about consultation responses regarding the SFDR that were diverging and contradictory. However, the European Supervisory Authorities (ESAs) have a plan to move forward and the future of the SFDR may look similar to the UK’s Sustainability Disclosure Requirements (SDR). PA Future writes about the upcoming changes and their similarity to the SDR stating:
“The ESAs focused on ways to introduce simple and clear categories for financial products, consisting of two voluntary product categories: ‘sustainable’ and ‘transition‘. Financial market participants, they argued, could use these two categories to ensure consumers understand the purpose of the products, with the rules for the categories having clear objectives and criteria to reduce greenwashing risks.
In a wide-ranging list of recommendations, the ESAs also suggested that the European Commission consider the introduction of a sustainability indicator that would grade financial products such as investment funds, life insurance and pension products.”
Under the UK’s SDR framework, sustainability funds are divided into “focus” and “improvers” similar to the “sustainable” and “transition” labels proposed by the ESAs. The EU appears committed to improving its sustainable finance framework. This news follows guidance published in May which restricted how sustainability funds could be named. Sustainable finance is evolving, even if it is taking significant trial and error to find mechanisms that work.
Our members can learn more about sustainable finance here.
If you aren’t already subscribed to our complimentary ESG blog, sign up for daily updates here delivered right to you.
