SFDR Overhaul: Balancing Sustainability and Uncertainty
The European Union’s Sustainable Finance Disclosure Regulation (SFDR) is set for a comprehensive review, reflecting the evolving global landscape of sustainable investment. The European Commission’s recently published consultation, open until December 15, seeks feedback on SFDR’s current requirements, its alignment with other sustainable finance legislation, and potential alterations to disclosure demands for financial market participants.
While SFDR was initially conceived as a disclosure framework, it’s increasingly used as a labeling system. This has led to confusion regarding Article 8 (environmental and/or social characteristics) and Article 9 (environmental and/or social objectives) fund classifications. Clarity regarding these distinctions is vital.
The consultation offers two strategies for refinement: enhancing the Article 8 and 9 distinctions with additional criteria or adopting a product categorisation system based on investment strategy. The latter could eliminate concepts like ‘sustainable investment’ from the transparency framework.
The review’s outcome remains uncertain, potentially causing market instability in fund categorisation and naming. It’s also unclear how this aligns with European Supervisory Authorities’ ongoing SFDR assessments.
The global sustainability reporting landscape continues to evolve, emphasising the need for standardised disclosure frameworks.
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