Sections 1 and 2 are common to both consultations.
Section 1 looks for feedback on how the SFDR is operating in practice e.g. Is it meeting its objectives? Are the costs of disclosure proportionate to the benefits, and what levels of one-off and recurring disclosure compliance costs are stakeholders experiencing? Are the disclosures working/useful? Is the SFDR being used as a labelling and marketing tool rather than as a disclosure framework? Are stakeholders facing data gaps/issues with data quality? Are investments in transition assets captured effectively?
Section 2 looks for feedback on the interplay between the SFDR and other existing sustainable finance legislation (the Taxonomy Regulation, the Corporate Sustainability Reporting Directive, the Benchmarks Regulation, MiFID II, the Insurance Distribution Directive and the PRIIPs Regulation). Among other questions, it asks whether differences between the definitions used in each piece of legislation create practical challenges.
The targeted consultation includes two further sections (3 and 4) specifically aimed at regulators, public bodies, financial market participants, investors and NGOs with an in-depth knowledge of the SFDR. As part of the targeted consultation, the Commission notes that the "SFDR was designed as a disclosure regime, but is being used as a labelling system, suggesting that there might be a demand for establishing sustainability product categories."
Section 3 seeks feedback on the usefulness of entity-level disclosures and whether they could be streamlined. Regarding product-level disclosures, the Commission is looking for views on whether uniform product-level disclosures should be introduced (whether for all in-scope financial products, or for certain categories of products and, in the latter case, what criteria would trigger reporting requirements). The Commission is also exploring whether having product-level disclosures in pre-contractual material, periodic documents and on websites is appropriate, and whether the breakdown of information is user-friendly. Respondents have also been asked to indicate whether product-level disclosures should be expressed on a scale to help compare those disclosures to industry averages and credible transition trajectories.
Section 4 looks at the potential creation of a voluntary categorisation system for financial products, against a backdrop of "persistent concerns that the current market use of the SFDR as a labelling scheme might lead to risks of greenwashing". The Commission has suggested that any categorisation system could either (a) build on the existing distinction between Article 8 and Article 9 products and add minimum criteria that would more clearly define in-scope products, or (b) focus on the nature of the product's investment strategy (with the latter option, the distinction between Articles 8 and 9 of the SFDR could ultimately disappear). It is also seeking feedback on whether the introduction of a voluntary categorisation system should be accompanied by rules on marketing communications and product names.
EU Commissioner Mairéad McGuinness will lead a high-level online workshop on 10 October 2023 to discuss the consultations further. Both consultations close for responses on 15 December 2023, and the Commission plans to publish a report on the SFDR in Q2 2024.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.