The EACB has submitted its response to the European Commission’s targeted consultation on the implementation of the SFDR level 1 regulation. The SFDR has undeniably had a positive impact: increased transparency and dialogue with clients, prioritization of ESG topics, increased corporate awareness. Nevertheless, implementation of the requirements has raised numerous challenges and concerns among authorities, financial market participants and investors. To fully harness the regulation's potential in combating greenwashing and promoting the redirection of capital towards sustainable endeavors, several weaknesses need to be addressed. EU Cooperative banks welcome the efforts put forward to improve the efficiency of the regulation, to streamline and to consolidate sustainability reporting across different pieces of legislation. Our main remarks and points of concern are detailed in our position paper.
- Crucially, the conceptual complexity of the definitions contained in SFDR and its RTS, and the many cross-references it contains, entails interpretation issues for financial market participants and clients. We consider it necessary to simplify disclosure requirements, addressing the most urgent and relevant issues. Retail customers in particular find it difficult to understand all the information available in the market, stemming from the complexity of the disclosure requirements.
- A categorization system could help in recommending products to customers who do not have clear sustainability preferences or are unable to define them. A revised SFDR framework could refine the categories to better reflect financial products’ strategies, distinguishing products with contribution strategies, transition strategies, and those which can demonstrate binding ESG factors embedded in their investment process applicable to their entire portfolio.
- However, the EACB wishes to highlight that at this point in time, customers have just begun to apprehend Art. 8/9 categorization. It therefore seems that a total overhaul at this stage would be very burdensome and confusing. While we agree that SFDR has not achieved its full intended effects and that a revision of Articles 6, 8 and 9 will be needed, we would advise against a hasty revision of the framework. We believe that through an ongoing dialogue between regulators and industry, we can achieve a framework that is understandable by all investors, eg. differentiating between the information needs of institutional and retail investors.
- We believe that a cost-benefit analysis should be carried out, taking into account the advantages and disadvantages of any new implementation or development, as this may generate uncertainty in the market and confusion for investors. We would highlight that the implementation of changes comes with high economic costs, requiring considerable investment of resources as well as costly IT adaptations.
For more detailed comments, please download our position paper.