In a joint letter to the European Commission, the financial market supervisory authorities of Austria, Germany and the Netherlands highlight the most important priorities for a revision of the regulation of sustainability-related disclosures by financial market participants and for financial products (SFDR; Sustainable Finance Disclosure Regulation)
The Austrian Financial Market Authority (FMA), the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), and the Netherlands’ Autoriteit Financiële Markten (AFM) submitted their most important priorities with regard to the debate about the regulation of sustainability-related disclosures by financial market participants and financial products, highlighting in particular the necessity of clear minimum requirements for future ESG product categories of financial products, which were submitted during a Call for Evidence for revising the European Commission’s SFDR (Sustainable Finance Disclosure Regulation) which runs until 30.05.2025.
From the three supervisory authorities’ common perspective, the following should be material elements of a revision of the SFDR:
- A framework that is simple and easy-to-understand: The SFDR 2.0 should provide a framework that is easy-to-understand and easy-to-implement for all stakeholders – especially for retail investors, product manufacturers, by means of clear and enforceable regulatory product categories.
- Two main categories for ESG financial products: Categorisation should concentrate on two clear categories: “sustainable products” and “transition products” to make the product categories easier to understand and to implement.
- Requirements for a potential third category: a third “ESG collection” category is being discussed (according to a Report on the EU Platform on Sustainable Finance published in December 2024), that should only be authorised with clear minimum requirements and stricter rules on naming and publicity, in order to avoid misleading claims as is currently the case with products in accordance with Article 8 SFDR.
- Objective minimum criteria are necessary: All categories should be based on objective minimum standards to strengthen trust in ESG designations and to reduce the burden required for various disclosures.
- Consistency with the Markets in Financial Instruments Directive II (MiFID II) and the EU Insurance Distribution Directive (IDD) as well as practical tests for categories: The product categories must be reflected in the light of sustainability preference requirements under MiFID II and IDD and at the same time made easier to understand. Future categories ought to also be tested with retail investors and market participants.
The full letter can be accessed via the following link: Joint Letter on SFDR review by AFM, BaFin and FMA (Format: pdf, Size: 26,1 KB, Language: English)