The European Commission has simplified transparency rules for sustainable financial products
The European Commission has proposed a set of amendments to the Sustainable Finance Disclosure Regulation (SFDR), the EU's transparency framework for financial products integrating environmental or social objectives. The proposed changes are offered in the context of the EU's course towards simplification and alignment of regulations in the field of sustainable development.
The SFDR Regulation is one of the most complex among EU disclosure requirements and applies to a wide range of EU financial institutions, thereby increasing the accountability of companies regarding risks and volumes of financing related to sustainable development. A comprehensive review of the SFDR has shown the need for significant resources from stakeholders for reporting, as well as the difficulty for investors to understand and compare the environmental and social characteristics of financial products.
The proposed changes will result in simpler and more usable information for investors.
Key elements of the proposal:
Simplified disclosures. The Commission proposes to delete entity-level disclosure requirements for financial market participants regarding principal adverse impact indicators. The aim is to address current overlaps between the Corporate Sustainability Reporting Directive (CSRD) and the SFDR, significantly reducing reporting requirements and costs associated with collecting data across a wide range of environmental, social and governance (ESG) topics, removing duplications. The amount of information to be disclosed will also be reduced and limited to data that is available, comparable, and meaningful.
A clear categorisation system. Introduction of a categorisation system for financial products making ESG claims. It will comprise three categories with clear criteria:
"Sustainable category" - products contributing to sustainability goals;
"Transition category" - products channeling investments towards companies and/or projects that are not yet sustainable, but that are on a credible transition path and contribute to the EU Green Deal goals;
"ESG basics category" - other products that integrate a variety of ESG investment approaches but do not meet the criteria of the above-mentioned categories.
Less radical changes to the directive include revisions of the subject matter and certain individual definitions of the directive, deletion of requirements for the European Supervisory Authorities (ESAs) regarding the development of "Do No Significant Harm" technical standards, exclusion of financial advisors from the scope of the directive, etc.
"The SFDR is undoubtedly the biggest challenge among EU regulatory requirements for reporting in the field of sustainable development, and the proposed changes are necessary to ensure effective reporting. In Ukraine, this directive is planned for implementation as part of the EU acquis implementation, and its alignment with the CSRD directive will definitely facilitate this task, as relevant central executive bodies have been actively working on the implementation of the latter in recent years, and the adoption of relevant legislation is expected soon," said Dmytro Sych, Senior Expert on Green Transition, DiXi Group NGO, General Manager for Green Finance, Office of Green Transition at the Ministry of Economy, Environment and Agriculture of Ukraine.
The Commission proposal will now be submitted to Parliament and Council for their deliberation.
Information on transparency rules for sustainable financial products is available at the link.
References to transparency rules for sustainable financial products are available at the link.
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