The European Fund and Asset Management Association (EFAMA) has broken ranks with some of its members by calling for an overhaul of the Sustainable Finance Disclosure Regulation (SFDR) labelling regime.
Responding to the European Commission’s consultation on the regulation, EFAMA said a new product categorisation system should be introduced to replace the current ‘light green’ Article 8 and ‘dark green’ Article 9 to make it clearer for retail investors to understand.
In September, the European Commission launched a consultation on overhauling SFDR in a bid to address growing concerns around greenwashing.
In its response, EFAMA noted how the current regime has been used as a “de facto” labelling regime which has “stretched it beyond its original intentions and not always been helpful”.
The industry body suggested three product categories, covering funds and ETFs that “positively contribute” to ESG objectives, those that facilitate the sustainable transition and those with “the intention of credible sustainability standards or adhering to a specific sustainability-related theme”.
“We believe that clear and deliberate categories, characterised by clear names, offer simplicity and are intuitively understood by investors. This categorisation in turn, would allow investors to confidently rely on these categories as quality labels,” EFAMA said.
The view puts it at odds with some of its members who are advocating for establishing categories around SFDR’s current Article 8 and 9 classifications.
“Although a number of our members support building the categories around SFDR’s established concepts, there is unanimous agreement among EFAMA members on the necessity to articulate the principles of intentionality and level of ambition of the products,” the group said.
Last month, BNP Paribas Asset Management (BNPP AM) backed a revamping of the current framework by creating sub-categories under Articles 8 and 9, Responsible Investor reported.
EFAMA added any overhaul should avoid using “overly stringent minimum criteria” for product categories.
Instead, products should be required to incorporate “objective, principle-based criteria” with the use of key performance indicators to assess outcomes.
Last week, the European and Sustainable Markets Authority (ESMA) abandoned its threshold of 50% for funds using sustainability-related words in funds names, instead opting for an 80% threshold.
In addition to revamping product categories, EFAMA suggested creating a clear definition for transition finance in a bid to incentivise businesses to move to a more sustainable business model.
It also called for simplified product disclosures to make it more accessible for retail investors as well as alignment with sustainability preferences under MiFID and the Insurance Distribution Directive.