The European Fund and Asset Management Association (Efama) has called for a range of changes to the European Union’s Sustainable Finance Disclosure Regulation (SFDR) labelling regime.
Responding to the European Commission’s consultation launched in September, Efama said a new product categorisation system should be introduced to replace the current ‘light green’ Article 8 and ‘dark green’ Article 9 to make it clearer for retail investors to understand.
While the industry group praised the transparency introduced by SFDR, it said the de facto labelling regime had “stretched it beyond its original intentions and not always been helpful.
The current Commission review needs to address how SFDR can provide clearer, more meaningful information for retail investors, promote transition finance and align well with other relevant legislation.”
EFAMA recommended implementing a categorisation system for financial products based on sustainability intentions.
It also advised incorporating objective criteria, clear product descriptions as well as outlined environment, social and governance (ESG) strategies and specified credible key performance indicators.
In addition, it called for introducing a standard disclosure template for all financial products with sustainability claims to enhance accessibility for retail investors by presenting information clearly and uniformly.
The proposals also highlighted the need for ensuring SFDR changes align with investor sustainability preferences in MiFID and IDD.
Efama stated, “For any product categories to be effective in practice, they must be understandable to retail investors. It is therefore crucial to align any changes in SFDR with the investor sustainability preferences under MiFID.”
Anyve Arakelijan, regulatory policy advisor at Efama, said, “The transformation of SFDR Articles 8 and 9 from their original role as disclosures into de-facto labels highlights the market’s growing need for a well-defined categorisation system.
At the same time, we also see merit in building upon the market’s existing familiarity with SFDR concepts, such as PAIs, when this could further complement the product categorisation regime.”
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