Stockholm (NordSIP) – It has been over two years since the Sustainable Finance Disclosures Regulation (SFDR) was first introduced. In December last year, the European Commission announced that it was time for a comprehensive assessment of the framework. As part of this review, on 14 September, the Commission launched a Targeted consultation, hoping to gather useful input from those most familiar with the SFDR and the EU’s sustainable finance framework in general. Experts are required to roll up their sleeves and get serious about how the finance industry should go about implementing the SFDR. They have until 15 December to submit their answers to questions regarding the framework’s current requirements, its usability, interoperability, and its part in tackling greenwashing.
“Views are welcome from financial market participants, investors, NGOs, relevant public authorities, national regulators, and others that are subject directly or indirectly to the provisions of the SFDR and/or have more in-depth knowledge and/or (working) experience in the field of sustainable finance disclosures,” writes the Commission. The consultation will be complemented by workshops and roundtables, enabling stakeholders to submit further input.
Agree or disagree?
Browsing through the detailed questionnaire, it appears that the Commission is genuinely interested in hearing whether the stakeholders find the framework useful and practically applicable. The main question in the first part of the document is if the SFDR is effective in achieving its broad objective to strengthen transparency in the financial services sector, including its principal adverse impacts (PAIs)
Respondents are invited to consider whether the costs associated with implementing the SFDR are reasonable and to provide estimates of how much they have and are expected to spend in order to comply with the regulation. Aware that most financial actors are facing severe problems in sourcing reliable data to fulfil their new regulatory obligations, the Commission also seeks to clarify which elements, in particular, are proving to be the most challenging.
Regulations galore
The SFDR interacts with several other legislations and their related delegated and implementing acts, such as the Taxonomy, the Benchmarks Regulation, the Corporate Sustainability Reporting Directive (CSRD), the Markets in Financial Instruments Directive (MiFID 2) and the Insurance Distribution Directive (IDD). Interoperability between this growing flora of frameworks has become increasingly challenging over the years.
In an attempt to delineate the most severe cases of discord, the Commission seeks respondents’ views about the current interactions and potential inconsistencies or misalignments between the SFDR and other sustainable finance legislation.
The future of Articles 8 and 9
Perhaps the most intriguing part of the questionnaire is the one at the end, however. It introduces the idea of a proper categorisation system for financial products to replace the current (mis)use of Articles 8 and 9 as a provisional one. “The fact that Articles 8 and 9 of the SFDR are being used as de facto product labels, together with the proliferation of national ESG/sustainability labels, suggests that there is a market demand for such tools in order to communicate the ESG/sustainability performance of financial products,” comments the Commission. “The existing concepts and definitions in the regulation were not conceived for that purpose. Instead, the intention behind them was to encompass as wide a range of products as possible, so that any sustainability claims had to be substantiated.”
Given the critical implications that this consultation might have for financial market participants, they should leap at the opportunity to answer the call of the Commission for feedback.
