The European Commission is calling for feedback on its plans to redesign the Sustainable Finance Disclosure Regulation (SFDR).
A formal call for evidence was launched on Friday, as EU policymakers move forward with major revisions to the anti-greenwashing law, to make it more workable for fund managers, and more useful to end investors.
The current rules, which came into force in 2023, have been widely criticised for being too complex and enabling further greenwashing by not having clear definitions and standards.
Some national supervisors are also unhappy with the lack of thresholds provided in the SFDR, making it harder for them to enforce the rules.
Nonetheless, a growing number of authorities are clamping down on non-compliant asset managers.
Two weeks ago, the Danish Financial Supervisory Authority (FSA) published the findings of investigations into three ‘Article 9’ funds – those claiming to align with SFDR’s most ambitious sustainability objectives.
It concluded that Nykredit Portfolio Administration’s approach was “not compatible with the requirement that the product can only invest in companies that are sustainable, as defined in the SFDR”.
Fellow manager Formuepleje did not have “sufficient methods and processes to ensure that the investee companies comply with good governance practices”.
And the criteria and thresholds used by StockRate Forvaltning’s fund were found to be “largely based on the investee companies’ intentions to reduce their greenhouse gas emissions in the long term, rather than the companies’ actual reductions at the time of investment and continuously thereafter”.
The FSA has asked all three asset managers to remedy the problems it identified.
Last year, Norway’s FSA found more than half of the 87 managers it investigated failed to comply with SFDR, and France’s AMF decided none of the five unnamed managers it performed spot checks on were in compliance with the law.
Aviva Investors was fined €56,000 by the financial supervisor of Luxembourg for failing to align five of its funds with the rules.
‘Unwarranted exclusions’
In its call for evidence, the Commission insisted the SFDR had been broadly effective when it came to enhancing the transparency of sustainability funds.
But it did concede that the law may demand more information than investors really need, and that there was a lack of legal clarity around key concepts, and some misalignment with other EU rules.
It also noted that the law was currently being interpreted in a way that resulted in the “unwarranted exclusion of some sectors”.
The Commission said that the feedback it had collected so far suggested there was broad support for updating SFDR to cater for different investor groups and types of financial products, and make it easier for retail investors to understand those products.
It said there was also enthusiasm for ensuring the regulation takes better account of the international nature of investments, and helps direct capital to a broader range of sustainable investments.
“Possible options to be examined for a revised SFDR include (i) targeted changes and clarifications to the existing disclosures; or (ii) more far-reaching changes involving the establishment of a number of categories reflecting different sustainability objectives of financial products, underpinned by common criteria,” it explained.
The call for evidence is expected to be the last public consultation on SFDR before the overhaul, although the Commission may conduct targeted outreach in the future.
The deadline for feedback is 30 May, with the revision scheduled to take place in the fourth quarter of 2025.
Read the digital edition of IPE’s latest magazine
No comments yet