18/09/23

GREEN FINANCE: EU Commission explores universal sustainability disclosures for financial products

As published on: fintech.global, Monday 18 September, 2023.

The EU Commission has unveiled a consultation surrounding its practices on sustainable financial disclosure.

The focal point of this consultation is the Sustainable Finance Disclosure Regulation (SFDR). It delineates the ways financial market stakeholders, especially asset managers, should present sustainability data to their investors.

The SFDR also outlines classification tiers for investment funds focused on sustainability, each with distinct disclosure necessities. This comprises ‘Article 8’ funds (promoting environmental/social characteristics) and the stricter ‘Article 9’ funds (with sustainability as their primary goal).

One of SFDR’s paramount stipulations, which is especially demanding for asset managers, is reporting on the Principal Adverse Impact (PAI) that investment choices exert on an extensive array of sustainability determinants.

The SFDR was instituted with an aim to mandate products making sustainability assertions to furnish evidence supporting those assertions, thus countering greenwashing.

The consultation suggests that standardising disclosure requirements for all financial products, irrespective of their sustainability claims, might help investors understand the sustainability performance of products better.

The EU Commission’s consultation emphasises that the present requirements could be perceived as placing an augmented strain on products incorporating sustainability considerations.

The consultation delves into potential disclosure prerequisites for all financial commodities, enumerating taxonomy-related revelations, engagement approaches, exclusions, and details on the utilisation of ESG-related information during the investment process.

The EU Commission’s consultation also broached the idea of devising a more specific EU-level product categorisation mechanism based on clear-cut criteria, transcending its prevailing “Article 8 and 9” classifications.

EU Commission Commissioner for Financial Services, Financial Stability and Capital Markets Union, Mairead McGuinness said, “Sustainability information is key to empowering investors to make informed decisions on their investments.

“Since the Sustainable Finance Disclosures Regulation (SFDR) was proposed in 2018, a lot has changed in the world of sustainable finance. Today we are launching an in-depth three-month consultation for stakeholders. We want to know if our rules meet their needs and expectations, and if it is fit for purpose.”

Tags

EU Commission Sustainability Green Finance