The European Commission has launched a consultation that will consider the future of the light green Article 8 and dark green Article 9 as part of a broader review of the Sustainable Finance Disclosure Regulation (SFDR).
“Since the SFDR was proposed in 2018, a lot has changed in the world of sustainable finance,” said Mairead McGuinness, commissioner for financial services, Financial Stability and Capital Markets Union.
She added, “We want to know if our rules meet investor needs and expectations, and if it is fit for purpose.”
The consultation paper said there is a risk of greenwashing arising from the use of SFDR as a labelling scheme and as a result looking at whether to develop a product labelling system based on “precise criteria”.
It noted this could either build out Articles 8 and 9 into product labels, or take a new approach such as focusing on types of investment strategies ranging from “positive contribution” to sustainability objectives or “transition focus” – similar to the proposals from the UK’s Sustainability Disclosure Requirements.
“In such a scenario, concepts such as environmental/social characteristics or sustainable investment and the distinction between current Articles 8 and 9 of SFDR may disappear altogether from the transparency framework,” it said.
The consultation added, “The fact that Articles 8 and 9 of the SFDR are being used as de facto product labels, together with the proliferation of national ESG/sustainability labels, suggests that there is a market demand for such tools in order to communicate the ESG/sustainability performance of financial products.”
Other topics covered are the SFDR’s interaction with other sustainable finance legislation such as the Corporate Sustainability Reporting Directive (CSRD), and potential changes to the existing disclosure requirements.
For example, the consultation noted that financial market participants will rely to a significant extent on the CSRD and the accompanying standards to fulfil their disclosure duties under the SFDR.
However, it asks if there is room to “streamline the entity-level disclosure requirements of the SFDR and the CSRD”.
In addition, the consultation, which closes on 15 December, hones in on the approach to principal adverse impact (PAI) indicators and invites respondents to submit a breakdown of costs associated with SFDR requirements.
