By Christine Mai

The European Commission is asking stakeholders for their views on the Sustainable Finance Disclosure Regulation (SFDR), through two consultations and a series of workshops. The SFDR sets out how financial intermediaries, such as asset managers, have to communicate sustainability information to investors. In application since 2021, it is designed to bring more transparency to the market and enable investors to make informed choices. But as the area of sustainable finance is changing, we need to make sure that these rules keep delivering. 

Sustainable finance framework

The SFDR is a key component of the EU’s Sustainable Finance Framework. It is designed to create transparency and empower investors who would like to put their money into companies and projects supporting sustainability objectives. Ultimately, this will help the EU to attract the private investment needed to move towards climate neutrality and implement the EU Green Deal.

But while the SFDR was intended to be a transparency framework, in practice it is being used as a labelling system for financial products. This puts a lot of pressure on the regulation, creating legal uncertainty for market participants and giving rise to fears of greenwashing and mis-selling of products. Moreover, the coherence and synergies between the SFDR and other major pieces of EU sustainable finance legislation, such as the Taxonomy Regulation, could also be improved. For these reasons, Commissioner Mairead McGuinness announced a comprehensive assessment of the SFDR in December 2022.

As part of this assessment, DG FISMA launched two in-depth consultations on 14 September. We want to hear from stakeholders, to find out if the regulation meets their needs and expectations, and whether they think it is still fit for purpose. The public consultation is shorter and targets the general public. It focuses on the SFDR as it is today, as well as on how it interacts with the other parts of the Sustainable Finance Framework. The targeted consultation is more detailed and aimed at experts such as financial market participants, investors, NGOs, relevant public authorities, national competent authorities, etc. It includes the same questions as the public consultation, but also goes further to explore potential changes to disclosures and the possible creation of a product categorisation system. Both consultations will run until 15 December 2023. We look forward to receiving your input!

Series of workshops

In parallel, DG FISMA is organising a series of workshops. This outreach kicked off on 10 October with an online event opened by Commissioner McGuinness. [You can watch the recording here] Two panels discussed the impact the SFDR has had, how well it works with other EU pieces of sustainable finance legislation as well as possible changes for the future. Speakers explored how disclosures could potentially be made more effective. They also debated what potential product categories could look like, how they could be designed and how issues such as communication and marketing might be addressed in the context of a product categorisation system.

Further workshops will follow. The feedback gathered through the consultation and technical discussions with stakeholders will be crucial to help us understand all the issues and complete the assessment of the SFDR. We want to be sure that our rules are proportionate to our main goals: that disclosures offer the information that investors actually need, and that they help tackle greenwashing while giving market participants the legal certainty they require.

While the assessment is progressing, we are, together with the European Supervisory Authorities (ESAs), working to provide market participants with guidance and support them in applying the SFDR as it currently stands. In this context, the Commission has for example clarified that investments in Taxonomy-aligned ‘environmentally sustainable’ economic activities can be automatically qualified as ‘sustainable investments’ under the SFDR.

Read more about the SFDR and find the link to the consultations

Christine Mai is a policy expert at the European Commission, DG FISMA, Asset management unit