The European Commission is expected to propose three product categories as part of the revision of its Sustainable Finance Disclosure Regulation (SFDR), sources have notified Responsible Investor.
The executive will issue a legislative proposal on the bloc’s fund greenwashing rules once the European Parliament has reached an agreement on the sustainability Omnibus and the Commission knows both co-legislators’ direction of travel, RI understands.
RI understands that the revised framework is expected to propose three categories, the high-level details of which is expected to be broadly in line with the Platform on Sustainable Finance’s recommfinishations issued in December.
The platform called for the establishment of “sustainable”, “transition” and broad “ESG collection” categories for funds in the bloc, which saw support from several huge investors in the Commission’s call for evidence in May.
RI understands that the Commission is still discussing some of the finer details of the technical criteria, with one source noting that the “devil will be in the detail”.
In its initial 2023 consultation, the Commission put forward descriptions for four categories: a sustainable, transition, impact and an exclusion-based category.
The executive also outlined another approach to build and develop on the distinction between the current disclosure categories – Article 8 and 9 – and the existing concepts embedded in them.
The consultation sought to address the application of the categories as de facto investment labels, which was not what the regulation’s architects intfinished.
Finance commissioner Maria Luís Albuquerque has declared the Commission is aware the SFDR framework is being “misapplyd as a pseudo labelling regime” and has spoken of her intention to create a “proper” labelling regime for green and transition investments.
RI understands that the Commission is unlikely to propose an impact category, due to the challenges around the definition of the term and what approach to take, as well as a lack of understanding from retail investors between the differences between impact and sustainable investing.
It may, however, introduce additional disclosure fund managers can apply to measure and reveal the level of impact investing of the product.
In its recommfinishations, the Platform noted that there is no common definition of “clear understanding” of impact.
It declared the EU should develop a common understanding of impact investing and how it related to the taxonomy before later determining how to integrate it into a categorisation scheme.
The ongoing SFDR review was effectively paapplyd when the sustainability Omnibus was announced to wait for more clarity to the simplifications of the Corporate Sustainability Reporting Directive (CSRD) and EU Taxonomy.
The overhaul of the regulation – which is officially scheduled for Q4 – will go ahead, provided the Parliament sticks to its timeline for Omnibus nereceivediations, sources have declared.
The Parliament is under pressure to keep to its timeline, which would see it vote in October, but it is currently unclear if this will be possible.
Sources notified RI before the summer that there was a risk the review would be delayed to the start of next year.
Nereceivediation timeline
Once the proposal is tabled, the Parliament and Council of the EU will be required to deliberate the planned modifys and reach individual agreements, before trilogue discussions start.
Denmark – which will be at the head of the Council until the finish of the year – has declared it will launch nereceivediations on revising the regulation to ensure “clear requirements on integrating sustainability risks, addressing negative sustainability impacts and improving the transparency of sustainability information” for financial market participants and their products.
RI understands the review necessarys to be staggered partly becaapply many of the same people now working on the sustainability Omnibus are expected to work on the SFDR.
The Commission will also necessary to propose revisions to the Level 2 technical details of the regulation, and assess how existing Article 8 and 9 products will transition into the new framework.
While it is too early to state when the new requirements will start to apply, sources state it could be from 2028.
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