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15 december 2023

CONSULTATIE | Focus op het verbeteren van de SFDR-level 1

CONSULTATION | Focus on improving the SFDR level 1

On 15 December 2023, we responded to the European Commission's (EC's) targeted consultation on the implementation of the Sustainable Finance Disclosures Regulation (SFDR), as published on 14 September 2023. We are appreciative of the efforts to further improve the SFDR, and we do see merit in more standardization of disclosures via the SFDR to improve comparability throughout the market and, needless to say, to avoid greenwashing which is the main purpose of the EU legislation.

View our response

Consultation response including a cover letter explaining our point of view

The EC has set up an extensive online consultation including closed questions and the possibility to provide additional insights where needed. Together with our members, we have prepared a response to the consultation, including a cover letter to provide additional clarification on certain aspects DUFAS and its members want to emphasize. You can find these l elements below.

Current requirements of the SFDR

We believe that the SFDR creates awareness in the financial services sector of the potential negative impacts that investment decisions can have on the environment and/or people, but the framework is currently suboptimal. This has primarily to do with challenges regarding data, certain key concepts used in the SFDR, and the classification system used in the SFDR which is currently being used as a label and therefore increases the risk of greenwashing. Lastly, we believe that there is disconnect between the retail investors' understanding of sustainability - namely actual sustainable impact – versus the SFDR definition of sustainability.

Interaction with other sustainable finance legislation

In general, we believe that the SFDR does not sufficiently interact with other parts of the EU sustainable finance package. For example, approach to 'Do no significant harm' and good governance in the SFDR is only to a very limited extent consistent with the ESG exclusions under the PAB/CTB. Another example is that in our opinion, the SFDR disclosures are only to a very limited extent consistent with the CSRD requirements, in particular with ESRS. Finally, the SFDR could be improved for distributors to determine whether a product can fit investors' sustainability preferences under MiFID2 and the IDD.

Potential changes to the disclosure requirements for financial market participants

Regarding individual portfolio management or mandates, we are unsure if mandates should be in scope of the SFDR. For example, under MiFID2, portfolio management services are an investment service and not a financial instrument or product (which are in scope of the SFDR). Furthermore, DUFAS believes that the PAI statement on entity level is not that useful, as investors are primarily interested in sustainability related disclosures. However, PAI statements on entity level are useful in our opinion, but we believe that such PAI indicators should be aligned and streamlined with PAI indicators published by companies under the CSRD/ESRS. Finally, we believe that the SFDR standardized product disclosures, particularly related to adverse impact disclosures, should apply to all financial products offered in the EU, regardless of their sustainability-related claims or sustainability characteristics.

Potential establishment of a categorization system for financial products

DUFAS sees merit in having a labeling regime or product categories in place. The circumstance that the SFDR is by the market used as a label, shows there is a need for a labeling regime. However, the proposed categories may not be mutually exclusive as they may be overlapping and therefore might impose difficulties when allocating the right category. In case categories are to be introduced, we want to emphasize there is a need for transition financial products, a category which is not very well embedded in the current SFDR framework.

More information

Would you like to respond, or should you have any questions? We would be pleased to hear from you. Please feel welcome to send an email to Randy Pattiselanno, DUFAS' manager strategy & regulatory affairs.

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