November 30, 2022
European Regulators Delay Review of SFDR Financial Product Disclosure Rules

The European Supervisory Authorities (ESAs), Europe’s three primary financial regulatory agencies, have delayed the review of prominent regulations for financial products under the Sustainable Finance Disclosure Regulation (SFDR).  The European Commission’s original date was April 28, 2023, but will be now 6 months later. 

The ESAs, which include The European Banking Authority (EBA), The European Insurance and Occupational Pensions Authority (EIOPA), and The European Securities and Markets Authority (ESMA), had been requested by the EU Commission to review indicators for the SFDR’s indicators for principal adverse impact (PAI) and financial product disclosures.

The EU SFDR is in conjunction with the EU’s Action Plan on financing sustainable growth. Intended to create harmonized rules for financial market participants including investors and advisers regarding integration of sustainability risks’ transparency and the reflection of adverse sustainability impacts in their processes as well as with respect to financial products providing sustainability‐related data.

The regulation includes classification levels for sustainability-focused investment funds, including ‘Article 8’ funds that “promote environmental or social characteristics or a combination of those characteristics,” and the more stringent ‘Article 9’ funds, “which have sustainable investment as their objective.”

From January 2023, asset managers with sustainable investment products will be required to begin providing disclosures under SFDR, there are some uncertainties when it comes to key reporting details, such as the PAI requirements. Recently, for example, asset manager Amundi reclassified nearly all of its $45 billion Article 9 funds to lower sustainability levels, saying that “the current regulatory framework does not yet allow the financial industry to respond in a uniform manner as to what should be considered “sustainable” or not.”

The ESA’s stated that they had come up against several challenges in delivering the requested input in the original timeframe sent in a letter to European Commission Financial Stability, Financial Services, and the Capital Markets Union Director General John Berrigan. They went on to mention that including the need for consultation with stakeholders and expert bodies, and the technical demands of working on aspects such as the Do Not Significantly Harm (DNSH) framework and to develop formulae for the PAI indicators.

Due to an urgent request by the Commission for the authorities to work on SFDR nuclear and gas-related rules, the ESAs said that it was not possible to focus on the review.

Click here to view the ESAs’ letter.

Source: ESG Today