Stockholm (NordSIP) – 4 July marked the deadline to respond to the SFDR consultation regarding principle adverse impact (PAI) and financial product disclosures launched earlier this year by the three European Supervisory Authorities – The European Banking Authority (EBA), The European Insurance and Occupational Pensions Authority (EIOPA), and The European Securities and Markets Authority (ESMA), aka the ESAs. Many organisations took the opportunity to make their voices heard, given the importance of the changes proposed by the ESAs.
True to the principles
As could be expected, the EU Platform on Sustainable Finance (PSF), the Commission’s designated advisory body on sustainability matters, submitted timely and detailed feedback to the ESAs, summarising its vision of the SFDR, the recommendations made to the European Commission and the ESAs as well as the principles to govern its thinking and suggestions.
The PSF starts by reminding the ESAs about its five guiding principles: relevance, consistency, proportionality, applicability, and precaution. Viewing the questions in the consultation through the lenses of these principles, the PSF concludes that whereas it welcomes the enhancement measures suggested by the EC, more work must be done. Three areas, in particular, need more attention, according to the Platform: investments in developing countries, SMEs, and derivatives.
A call for consistency
The PSF strongly encourages the EC to ensure greater consistency between ESRS, PAIs, BMRs and the Taxonomy Regulation. Its recommendations include making mandatory the ESRS reporting of at least those PAIs that are critical to all sectors, including GHG emissions also in the definition of PAIs and ESRS relevant or material economic activities, and allowing companies to report a “qualified zero” if they do not conduct the identified economic activities.
Echoing these generally supportive comments to the consultation, the PRI urges policymakers “to maintain consistency with the final ESRS as adopted by the European Commission.” PRI takes the opportunity to raise once again the issue of the EC’s decision to make certain issue-specific disclosures subject to a materiality assessment under the current ESRS proposal. “We may see a potential failure to report the information that investors urgently need to assess the sustainability risks, opportunities, and impacts of their investments and meet their requirements under SFDR,” comments PRI’s Head of EU Policy, Elise Attal.
Eurosif is another organisation to welcome the ESAs’ proposals on, among others, additional mandatory and opt-in social PAI indicators, enhancing the application of the DNSH principle, and simplifying pre-contractual and periodic documentation templates. Eurosif, too, stresses the need for consistency. “To enable a seamless application of SFDR, the ESRS must mandate investee companies to disclose the information that is necessary to consider the environmental and social PAI indicators,” writes the organisation in its feedback.
Raising concerns
Not all respondents are as supportive, however. The European Savings and Retail Banking Group (ESBG), for instance, notes that although it welcomes the objective of the ESAs to clarify the current framework and make it more workable, implementing changes comes at a high economic expense. In the group’s response to the ESAs, ESBG calls adding the new requirements “unsatisfactory and premature” and calls for the ESAs to avoid adding an extra layer of complexity to the current framework, making it even more difficult to implement for financial market participants and causing fatigue to customers with new information in a short period of time.
Another organisation to voice concerns about the new measures and technical criteria added to the SFDR is the Managed Funds Association (MFA). In a letter responding to the ESAs’ joint consultation, MFA urges them to consider the range of strategies and tools utilised by alternative asset managers when reviewing the SFDR framework. “Additional requirements should be delayed until the ESAs can address SFDR’s interoperability and data availability challenges,” writes MFA Head of EU Government Affairs Taggart Davis. “It is crucial that the SFDR review recognises the important role that the tools and strategies used by alternative asset managers have in advancing sustainability goals.”
On a similar note, the International Swaps and Derivatives Association (ISDA) requests in its response that “the ESAs allow the industry additional time to reach a consensus on the treatment of derivatives and provide maximum consistency across the relevant legal frameworks through continuous collaboration with the PSF and the European Commission and relevant industry stakeholders.”
