Key messages on the Implementation of SFDR

EFAMA published its response to EC’s targeted consultation on the implementation of SFDR (eventid=22926). The SFDR aimed to enhance transparency in sustainable finance, but its adoption as a de facto ESG labeling regime by market participants has led to unintended complexities. The EC’s review needs to enhance SFDR’s clarity for retail investors, promote transition finance, and align with other relevant legislation.
Proposed solutions include the introduction of a categorization system based on a product’s sustainability intentions. This system would encompass clear descriptions, explanations of ESG strategies, and the specification of credible KPIs. Transition finance, a concept crucial for supporting companies in adopting more sustainable practices, should be explicitly defined and integrated within the SFDR framework. Simplified product disclosures through a standard template for all financial products with sustainability claims aim to enhance accessibility for retail investors.
Alignment with distribution regulations, particularly those under MiFID and IDD, is deemed crucial for ensuring the effectiveness of product categories in practice. Furthermore, streamlined entity-level disclosures within SFDR should align with the CSRD to reduce duplication, costs, and focus on providing decision-relevant information.
In recommending amendments to SFDR, the emphasis is on refining the disclosure requirements to be more investor-centric. A unified EU-level framework for sustainability disclosures is highlighted as crucial for harmonization, standardization, and enhanced investor protection. Additionally, concerns regarding entity-level disclosures, particularly PAI disclosures, suggest potential removal to avoid redundancy and maintain focus on product-level information.