The European Fund and Asset Management Association (EFAMA) has called for consistency and less instability in the sustainable investment disclosure regulation.
EFAMA was responding to the European Supervisory Authorities – European Insurance and Occupational Pensions Authority (EIOPA), European Securities and Markets (ESMA) and European Banking Authority (EBA) – consultation on the Sustainable Finance Disclosure Regulation (SFDR).
The Association was proposing new sustainability indicators in relation to principle adverse impacts (PAIs) as well as additional disclosures to the ‘do no significant harm’ (DNSH) principle.
“First and foremost, EFAMA stresses the need for a pragmatic and future-proof approach to the ESAs technical work,” the association stated.
“There are still outstanding fundamental issues within the SFDR and the European Commission is planning a review soon, therefore we must ensure that any technical changes made now are not made obsolete later by this review,” it added.
The ESAs recommended clarifications around the formulas for PAIs and the simplification of disclosures through the use of a dashboard, which are positive steps.
However, EFAMA said, “we fail to see the added value of expanding disclosures on the ‘do no significant harm’ assessment of sustainable investments, especially as we anticipate further changes to the sustainable investment definition and DNSH assessment.”
The association also believes that SFDR PAIs must align with the Corporate Sustainability Reporting Directive’s (CSRD) European Sustainable Reporting Standards (ESRS) which define companies’ non-financial reporting obligations.
It notes that the European Commission has recently proposed to reduce companies’ reporting obligations which now means there is a misalignment in scope, definition, materiality assessment and timing.
Last but not least, the EFAMA stress the need for sufficient time to implement the eventual changes.
It argues that If investors are confronted with constantly changing disclosures, it erodes consumer confidence in sustainable products, thereby hindering progress in the broader sustainable finance agenda.
“To address this, it said, we strongly recommend establishing a minimum one-year gap between the publication of Regulatory Technical Standards and their implementation, “it said. “This timeframe will allow the financial industry to adequately prepare and adapt, ensuring a seamless transition without undue disruption.
Anyve Arakelijan, regulatory policy advisor at EFAMA, said. “We are still at the inception of the EU’s sustainable finance framework, which means everything, including disclosures, is in constant flux. We understand how hard it is to strike the right balance between meaningful disclosures for investors and practical implementation for the industry.
We must, however, stop tinkering around the edges and address the outstanding issues within SFDR before making technical changes which may be made obsolete by the upcoming SFDR review by the European Commission.”
She noted that fund managers must also be provided with the necessary non-financial data to prepare their own regulatory reporting.
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