AFM publishes position paper on improving the SFDR

The AFM has published a position paper aimed at improving the SFDR as part of the ongoing consultation by the European Commission for a legislative revision.
AFM critizes that the definition of sustainable investments under 2(17) SFDR leaves room for a wide interpretation that is not always in line with investor expectations. Transparency is crucial for redirecting capital flows towards investments necessary for transitioning to a sustainable economy. SFDR information requirements assist investors in making sustainable investment decisions. However, this information is not always easy to understand and compare, especially for individual investors. Therefore, the AFM suggests changes to make the requirements more comprehensible to consumers.
Most sustainable investors aim to create a sustainable impact with their investments. Research indicates that consumers find it challenging to differentiate between products that have an impact and products that align with their ethical values. AFM suggests mandating minimum adverse impact disclosures for all financial products, regardless of their sustainability characteristics.
The AFM proposes introducing three product labels that align with the expectations and goals of sustainable investors: „transition,“ „sustainable,“ and „sustainable impact”. These labels help investors understand the differences between various types of sustainable investment products and provide them with better insight into how to make an impact.
Specific minimum quality and transparency requirements are associated with each label to reduce the risk of greenwashing. They propose removing the current „Article 8“ and „Article 9“ labels to prevent their misuse as source of greenwashing.
They suggest to amend rules for client advice (MiFID and IDD) in line with legislative changes to the SFDR so that investors can select a financial product that meets their clients’ sustainability preferences.
The AFM supports a level playing field for financial products in terms of sustainability transparency, whether they have sustainable features or not. Specifically, the AFM suggests that all financial products should report at least a limited number of sustainability indicators, making the primary negative impact of each product transparent to investors.
Furthermore, to allow products that don’t meet quality requirements for sustainability labels to disclose their ESG credentials with reduced requirements but not claim a sustainability label.
According to AFM, many of these issues could be solved by making the SFDR framework more investor-oriented, through more consumer-friendly product categorisations.