The European Fund and Asset Management Association (EFAMA) has called for consistency and less instability in the sustainable investment dlisclosure regulation in its response to a joint consultation by the European Supervisory Authorities (ESAs) – the European  Insurance and Occupational Pensions Authority (EIOPA), the European Securities and Markets (ESMA) and the European Banking Authority (EBA) – on various regulatory technical standards (RTS) for the Sustainable Finance Disclosure Regulation (SFDR).

The ESAs are proposing new sustainability indicators in relation to principal adverse impacts (PAIs) and additional disclosures to the ‘do no significant harm’ (DNSH) principle, as well as some other modifications.

“First and foremost, EFAMA stresses the need for a pragmatic and future-proof approach to the ESAs’ technical work,” the association stated.

“There are still outstanding fundamental issues within the SFDR and the European Commission is planning a review soon. Therefore, we must ensure that any technical changes made now are not made obsolete later by this review,” it added.

The ESAs have proposed clarifications around the formulas for PAIs and the simplification of disclosures through the use of a dashboard, which EFAMA claims are positive steps.

However, “we fail to see the added value of expanding disclosures on the ‘do no significant harm’ assessment of sustainable investments, especially as we anticipate further changes to the sustainable-investment definition and DNSH assessment,” the association noted.

Additionally, EFAMA said the SFDR PAIs must align with the Corporate Sustainability Reporting Directive’s (CSRD) European Sustainable Reporting Standards (ESRS) which define companies’ non-financial reporting obligations.

The European Commission has, however, recently proposed to reduce companies’ reporting obligations which now means that there is a misalignment in scope, definition, materiality assessment and timing, EFAMA said.

“We call on the Commission to restore this alignment to ensure that fund managers receive the relevant non-financial information to, in turn, be able to produce their own SFDR client disclosures,” it added.

Furthermore, EFAMA stated in its consultation response: “While we can appreciate the value of consumer testing, we are disappointed that such consumer testing was not conducted before this consultation. Consulting on areas that have undergone extensive and conclusive consumer testing would have been more productive than having technical discussions without guidance on whether these changes will enhance clients’ understanding of our disclosures.”

EFAMA also stressed the need for sufficient time to implement the eventual changes.

“If investors are confronted with constantly changing disclosures, it erodes consumer confidence in sustainable products, thereby hindering progress in the broader sustainable-finance agenda,” it said.

”To address this, we strongly recommend establishing a minimum one-year gap between the publication of Regulatory Technical Standards and their implementation. This timeframe will allow the financial industry to adequately prepare and adapt, ensuring a seamless transition without undue disruption.”

Anyve Arakelijan, regulatory policy adviser at EFAMA, said: “We are still at the inception of the EU’s sustainable finance framework, which means everything, including disclosures, is in constant flux. We understand how hard it is to strike the right balance between meaningful disclosures for investors and practical implementation for the industry.

“We must, however, stop tinkering around the edges and address the outstanding issues within SFDR before making technical changes which may be made obsolete by the upcoming SFDR review by the European Commission.”

Arakelijan said that fund managers must also be provided with the necessary non-financial data to prepare their own regulatory reporting.

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