European Parliament has given the first glimpse into its negotiating position on the Sustainable Finance Disclosure Regulation (SFDR).
Gerben-Jan Gerbrandy, the Democrat politician in charge of the file, published a draft report on Monday, which shows broad support for the European Commission’s plan to turn SFDR into a labelling regime.
However, the document outlines a number of changes that Gerbrandy believes Parliament should push for during political negotiations later this year.
He wants to remove a safe harbour clause for funds that use official EU climate transition benchmarks, and tighten another that allows funds with 15% Taxonomy-alignment to qualify automatically — raising that threshold to 20%.
The draft report also lays out stronger requirements for product-level reporting against Principle Adverse Impacts (PAIs) — one of the most controversial elements of SFDR.
The Commission has proposed that funds should explain their potential environmental and social harms if they want to qualify for the sustainable or transition categories, but has made the PAIs themselves voluntary in a bid to make the rules less prescriptive.
It’s also seeking to remove a current requirement to make similar disclosures at entity level.
Gerbrandy, on the other hand, says financial market participants should be required to disclose a limited, mandatory set of PAIs for any of their funds seeking categorisation under the regime.
He doesn’t reintroduce the concept of entity-level disclosures.
For non-categorised products, the draft report calls for a mandatory disclaimer that explicitly states they don’t qualify as sustainable — intended to protect potential clients and customers from greenwashing.
While the Commission’s proposal recognises investor engagement as a component that could help funds to qualify for the planned ‘transition’ label, Gerbrandy suggests that any categorised product should have to disclose its engagement strategy, or explain why it doesn’t have one.
Isabella Ritter, a senior EU policy officer with campaign group ShareAction, said this element of the draft report “sends a clear signal that engagement matters, by requiring categorised products to disclose an engagement strategy”.
However, ShareAction is pushing for engagement to become a mandatory requirement for any fund seeking to qualify under SFDR.
The report will now be discussed within the European Parliament’s Committee on Economic and Monetary Affairs, and a vote is expected on 15 July. It is due to be signed off by the wider parliament after the summer, in anticipation of political negotiations with member states towards the end of the year.
