Europe’s asset management body has called on EU lawmakers to drop engagement requirements from the Sustainable Finance Disclosure Regulation (SFDR) and allow sovereign bonds to qualify as transition assets.
The European Fund and Asset Management Association (EFAMA) published a list of demands for co-legislators ahead of today’s first trilogues on the revised regime.
It argued SFDR 2.0 “began as a simplification exercise and should end as one” with “three distinct product categories that are easy for an end investor to understand and a distributor to explain, with a few criteria that are clear and workable with the data that exists today”.
“Every extra criterion added by member states or MEPs is a data point an asset manager would have to source for every stock holding, a supervisor would have to check, and a distributor would have to explain,” EFAMA wrote.
It wants co-legislators to reject European Parliament’s proposed requirement for investors to demonstrate they have meaningful engagement strategies at portfolio level, saying such strategies should be treated as “a flexible tool that products can rely on and disclose where used”.
Non-EU government bonds should be considered as eligible ‘transition’ assets, EFAMA argued, if aligned with a manager’s documented methodology.
“Climate transition is a global challenge, and blocking foreign sovereign bonds forces managers to ignore major transition opportunities outside European borders,” it said.
The body also wants the transition category to be made more flexible by making it easier for corporate issuers to qualify.
Currently, Council and Parliament have both suggested that if a firm meets multiple criteria, such as having a decarbonisation plan or allocating capital to activities aligned with the EU Taxonomy, then it would be eligible.
While Council names just two conditions, Parliament wants four – something EFAMA says would make the ‘transition’ category “impossible to populate”.
Instead, it is calling for companies to be eligible if they meet a single criterion: either having 20% of capital expenditure aligned with the EU Taxonomy or publishing a “Scope 1 or 2” emissions reduction plan.
“The transition category is where the trilogues have the most to get right,” said Anyve Arakelijan, a senior regulatory policy advisor at EFAMA.
“If policymakers treat the rules as a rigid checklist, transition funds won’t be able to invest in the very carbon-intensive companies they are meant to transform,” she continued.
“Instead of driving change from the inside, strict EU hurdles will simply push these companies – and the influence over them – into the hands of foreign investors who face no such restrictions.”
