ESMA’s latest guidance expected to improve transparency, says Eurosif

The guidelines published by the European Securities and Markets Authority (ESMA) on fund names using terms like ‘sustainability’ and ‘ESG’ in fund names “is expected to improve transparency and consistency” on sustainable investing, while waiting for a possible reform of the Sustainable Finance Disclosures Regulation (SFDR), Pierre Garrault, senior policy adviser at European Sustainable Investment Forum (Eurosif), told IPE.

The timing of the SFDR review will now likely depend on decisions that will be taken by the next European Commission taking office after the EU elections in June.

“We expect a publication in 2025, which could lead to the first changes to the SFDR framework being applicable around 2028,” Garrault added. ESMA’s guidelines on funds’ names might have a positive impact for the time being, he said.

“We urge the [European] Commission to adopt ESMA’s recommendations to modify the SFDR Regulatory Technical Standards published in December 2023, which would bring welcomed short-term improvements to the framework,” Garrault said.

The Commission’s feedback summary report to reassess the SFDR has shown that stakeholders’ support for the framework remains strong, but many respondents, including Eurosif, find it insufficiently clear in defining key terms, and is used de facto as a labelling regime, he said.

Sustainable financial disclosure regulation needs an “ambitious review”, Garrault said, building on what it has achieved so far.

As the majority of the respondents to the consultation, Eurosif supports “some high-level characteristics of this categorisation” products, and the establishment of mandatory disclosure requirements for all financial products regardless of their sustainability claims, he added.

The association has looked into analysis pointing at a stronger support for an approach splitting categories according to the type of investment strategy of products, rather than converting Article 8 and 9 in formal categories.

“This analysis does not take into account that these two options are not mutually exclusive or binary (respondents could support/reject both approaches). In fact, many respondents, including Eurosif, indicated favouring some sort of hybrid approach between the two – again with diverging views,” Garrault said.

Eurosif advocates for a hybrid approach building on the current SFDR framework to establish three mandatory product categories “sustainable investments”, “transition investments”, and “binding environmental and/or social factors”.

While respondents are split on the relevance of entity-level disclosure requirements, Eurosif is also calling for maintaining entity-level disclosures that focus on key metrics and the sustainability due diligence policies of market participants.

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