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ESMA Review of SFDR Delegated Regulation regarding PAI and financial product disclosures

Sustainability-related Disclosures (SFDR)
05 July 2023 | Policy Position
Sustainability-related Disclosures (SFDR)
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EFAMA has responded to the European Supervisory Authorities' (ESAs) joint consultation setting out various regulatory technical standards (RTS) for the Sustainable Finance Disclosure Regulation (SFDR). They propose new sustainability indicators in relation to principle adverse impacts (PAIs) and additional disclosures to the ‘do no significant harm’ principle, as well as some other modifications.


First and foremost, EFAMA stresses the need for a pragmatic and future-proof approach to the ESAs technical work. There are still outstanding fundamental issues within the SFDR and the European Commission is planning a review soon, therefore we must ensure that any technical changes made now are not made obsolete later by this review. The ESAs have proposed clarifications around the formulas for PAIs and the simplification of disclosures through the use of a dashboard, which are positive steps. However, we fail to see the added value of expanding disclosures on the ‘do no significant harm’ assessment of sustainable investments, especially as we anticipate further changes to the sustainable investment definition and DNSH assessment.


Second, the SFDR PAIs must align with the Corporate Sustainability Reporting Directive’s (CSRD) European Sustainable Reporting Standards (ESRS) which define companies’ non-financial reporting obligations. However, the European Commission has recently proposed  to reduce companies’ reporting obligations which now means that we have a misalignment in scope, definition, materiality assessment and timing. We call on the Commission to restore this alignment to ensure that fund managers receive the relevant non-financial information to, in turn, be able to produce their own SFDR client disclosures.


Third, while we can appreciate the value of consumer testing, we are disappointed that such consumer testing was not conducted before this consultation. Consulting on areas that have undergone extensive and conclusive consumer testing would have been more productive than having technical discussions without guidance on whether these changes will enhance clients’ understanding of our disclosures.


Last but not least, we stress the need for sufficient time to implement the eventual changes. If investors are confronted with constantly changing disclosures, it erodes consumer confidence in sustainable products, thereby hindering progress in the broader sustainable finance agenda. To address this, we strongly recommend establishing a minimum one-year gap between the publication of Regulatory Technical Standards and their implementation. This timeframe will allow the financial industry to adequately prepare and adapt, ensuring a seamless transition without undue disruption.

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