Review of SFDR is an opportunity to improve transparency for investors
The Sustainable Finance Disclosure Regulation (SFDR) has promoted transparency in sustainable finance, however its use by market participants as a de facto ESG labelling regime has stretched it beyond its original intentions and not always been helpful. The current European Commission review needs to address how SFDR can provide clearer, more meaningful information for retail investors, promote transition finance, and align well with other relevant legislation. Real sustainable changes at the corporate level are urgently needed and a well-functioning regulatory framework would allow sustainable investors to contribute to this economic and technological transition more efficiently.
We propose the following solutions:
Categorisation system based on the product’s intention: Categorise financial products by their sustainability intentions using objective criteria, including a clear description of the product’s intentions, an explanation of the ESG strategies that will be followed, and the specification of credible KPIs.
Transition finance: The concept of transition finance needs to be clearly defined and integrated within SFDR. This will incentivize investments that help companies moving towards a more sustainable business model, rather than only focusing on projects or firms that are already sustainable.
Simplified product disclosures: Introduce a standard disclosure template for all financial products with sustainability claims, making information more accessible for retail investors.
Alignment with distribution regulations: For any product categories to be effective in practice, they must be understandable to retail investors. It is therefore crucial to align any changes in SFDR with the investor sustainability preferences under MiFID and IDD.
Streamlined entity-level disclosures: To avoid unnecessary duplication, the entity-level sustainability reporting within SFDR should be aligned with the Corporate Sustainability Reporting Directive (CSRD) to reduce costs and focus on providing information that truly helps decision-making.
Anyve Arakelijan, Regulatory Policy Advisor at EFAMA, commented: “The transformation of SFDR Articles 8 and 9 from their original role as disclosures into de-facto labels highlights the market's growing need for a well-defined categorisation system. This would simplify the landscape for investors, especially if these categories have names that are intuitively understandable. At the same time, we also see merit in building upon the market's existing familiarity with SFDR concepts, such as PAIs, when this could further complement the product categorisation regime.”
Tanguy van de Werve, Director General at EFAMA, commented: “This review of the SFDR is much needed and we applaud the Commission for being open to quite significant changes if they are in the best interests of investors. Whatever the changes will be, the investor sustainability regime under MiFID and IDD will have to be aligned accordingly to improve the customer journey and facilitate sustainable investing.”
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Note to editors :
Read more about our work on SFDR here.
More information on the European Commission consultation on SFDR here.
For further information, please contact:
Hayley McEwen
Head of Communication & Membership Development
Tel: +32 2 548 26 52
Email: Hayley.McEwen@efama.org
