EBF response to the SFDR consultation
BRUSSELS, 14 December 2023 – Key points
- The current set-up of the SFDR has number of key shortcomings, including complexity, lack of clarity, cost-inefficiency or incoherence with other pieces of EU Sustainable Finance Framework. It also not always supports the assessment of clients’ sustainability preferences in accordance with MiFID rules.
- The SFDR review should be based on a pragmatic approach with emphasis on the need of retail investors. Given the extensive resources used to implement the SFDR, we advocate for building as much as possible on elements that have become familiar to the market as well as aligning with global financial market initiatives where possible.If a categorization scheme is to be developed it should build on the SFDR elements, reconciling its design as disclosure regime against its use as a de facto labelling regimeThe categorization should accommodate the majority of products with sustainability characteristics on the market while not preventing further innovation and includes a transition finance aspect in the categorization system with clear criteria that prevent greenwashing.
- The Art. 8 and Art. 9 approach could therefore be a starting point in order to develop a clear and comprehensible categorization system aligned with the disclosure requirements that however need to be simplified compared to today, in addition to minimum quantitative requirements. This will eliminate the need for additional disclosure requirements when a product falls within a specific sustainability product category and will decrease the risk of greenwashing claims.
- To enhance the understanding of investors, in particular retails investors, the interaction of the SFDR with other pieces of the EU Sustainable Finance Framework need to be considered holistically. Consistency between SFDR, MiFID and PRIIPS KID is important.
- There is also room for streamlining sustainability-related entity level requirements across different pieces of legislation mostly regarding to contents, timing, and materiality
- Assessment. If entity level indicators were to remain in the SFDR, it is important that SFDR indicators should be simplified and aligned with CSRD/ESRS in terms of PAI definitions, calendar, and materiality assessment rules.
- The number of PAIs to be applied at product level should be reduced and simplified to the climate and social related ones. There are also methodological challenges connected to PAIs reporting. It is not well defined how PAI should be considered at product level nor whether it is necessary to take into account all the indicators. Furthermore, the optional PAIs make disclosures less comparable. Mandatory disclosures on a fixed and limited set of PAIs would make SFDR more decision-relevant for investors.
- Before any considerations of the extension to all products under the SFDR, (which is expected to substantially increase administrative costs), the costs and burdens related to the sustainable disclosure of financial products need to be reduced, the incoherence related to Art. 8 products and MiFID need to be fixed and a thorough cost-benefit analysis of any extension should be undertaken.
- Should new categorization system be introduced, sufficient time should be granted and supporting measures should be introduced such as grandfathering clause for existing product disclosures. Since the ESAs have recently published the final report regarding the possible amendments to the RTS, the Commission should not amend the RTS in order to avoid further implementation costs until it is clear whether and how the legal text of the SFDR will change (which would entail further amendments to the RTS).
- Finally, we believe it is important to promote interoperability with rules established in other jurisdictions (e.g., FCA, SEC) and facilitate implementation with a mapping of how labelling criteria compare across these frameworks.
For more information:
Denisa Avermaete, Senior Policy Adviser – Sustainable Finance, firstname.lastname@example.org
About the EBF:
The European Banking Federation is the voice of the European banking sector, bringing together national banking associations from across Europe. The EBF is committed to a thriving European economy that is underpinned by a stable, secure and inclusive financial ecosystem, and to a flourishing society where financing is available to fund the dreams of citizens, businesses and innovators everywhere.